Source · Select Committees · Public Accounts Committee
Recommendation 5
5
The Department has not established a reliable and sophisticated approach to estimating the cost of...
Conclusion
The Department has not established a reliable and sophisticated approach to estimating the cost of its future equipment programme, including setting realistic efficiency savings. The Department acknowledges the risk of costs escalating on its equipment projects, which are often large, complex projects involving the development of new technologies. The Department’s approach to cost forecasting is likely to understate the risks, with some projects—such as nuclear and IT networks programmes—likely to be at higher risk of cost increases. The Department monitors these risks, including fluctuations in future foreign exchange costs, but has not explored whether its approach to assessing risk remains appropriate for all projects. It also continues to make over-optimistic and inconsistent judgements on future efficiency savings. The Department expects the TLBs to find £12.3 billion of efficiency savings from projects in the Plan and had high confidence in its ability to achieve £8.2 billion of these savings (66% of its target). However, despite our previous recommendations, the Department has again included £2.7 billion of efficiency savings for which it has not yet implemented delivery plans and £1.1 billion of savings with no delivery plans. It also needs to find another £0.4 billion of savings to achieve its savings target. Furthermore, past performance shows the Department has been over optimistic in its ability to achieve planned savings. However, the failure to deliver these savings and find new efficiencies, would mean that the Plan is even less affordable. Recommendation: The Department should strengthen its approach to assessing risk in long-term projects, liaising with other government departments to establish and draw on best practice. In the next Equipment Plan report, it should explain the improvements made and set out how it has tested confidence in its ability to deliver planned efficiency savings, including those for 2021–22.
Government Response
Acknowledged
HM Government
Acknowledged
5.1 The government agrees with the Committee’s recommendation. Target implementation date: Autumn 2021 5.2 The next Equipment Plan report will explain the improvements made to assess risk in long-term projects and detail on the department’s planned efficiency savings. 5.3 As part of the work to strengthen the approach to assessing risk across the portfolio, the department has established a programme board to review how the department records risk in its financial forecasts to inform and support financial decision-making and control. The programme board has made several improvements, most notably the creation of centralised guidance on the methodologies for calculating risk costings and appropriate use. Supporting tools have also been made available to the project delivery community, which have purposefully been developed to accompany the new guidance. 5.4 The programme board will lead an implementation phase starting in financial year 2021-22, with the aim of fully embedding the guidance and improving the reporting, visibility and monitoring of risk across the portfolio. For the department’s major programmes, this will partly be achieved by improving risk management information presented at the Quarterly Portfolio Review.