Navigating Complex Defence Project Budgets: The Role of Finance Professionals
Including a finance professional in the project team from its establishment is a crucial contributor for the overall success of a project.
Financial management at the Department of Defence (Defence) is an ever-evolving field. An increasing number of highly complex projects and additional scrutiny over their effective management creates challenges for Defence project leaders to deliver projects on time, to budget and to deliver the full capability needed for the Warfighter to succeed. Using skilled finance professionals, Defence project leaders can make informed decisions to best manage their budgets to meet their capability goals.
A recent report by the Australian National Audit Office (ANAO) on 21 major Defence projects during the 2023-24 financial year noted the increase in the proportion of very highly complex and highly complex projects (ACAT I and ACAT II projects) since 2013. Further, only 57 percent of projects examined believed they would deliver all capability requirements, and there was an aggregate schedule slippage of 21 percent across the projects since second pass approval.
In recent years, Defence has had an increased focus on the achievability of budgets, which has been driven in part by increased pressure on the department-wide budget. The ANAO’s Major Projects report states that in the 2023-24 financial year, across the 21 projects examined, actual expenditure was $4.5 billion against a Budget Estimates forecast of $5.7 billion, representing an underspend of 21 percent. In this case, an overestimation of project spend is a risk to the Defence budget at a macro level as the excess budget could be utilised elsewhere in the Department. At a micro level, potential quarantining of funds reduce available project budget, albeit temporary, and impact on the ability to deliver capability.
The findings of the ANAO report appear to mostly align with my observation, that there is often a natural optimism by project leadership resulting in budgets that are based on assumptions about ‘what needs to happen’ to achieve a capability on time, vs ‘what is likely to happen’ accounting for project delays. Further, the Report shows there are significant consequences, including a reduction in capability, if project leaders are not able to accurately forecast project expenditure.
This is when a skilled finance professional can help in managing a project’s financial risk.
A skilled finance professional should bring a range of attributes to a project including courage, discretion, strategic mindset and communication. These attributes allow a finance professional to move beyond a mere reporting role into a strategic finance advisor role. I have outlined a few ways a finance professional can help achieve project success.
Engagement Throughout the Project Life cycle
A skilled finance professional can add value throughout the entirety of a project’s lifecycle from the pre-approval stage through to sustainment of the capability. As a result of early engagement, a finance professional can assist in developing best-practice frameworks to manage financial processes and decision making. A finance professional can develop long-term risk-based budgeting to assist projects, ensuring their funding is phased appropriately and is of lower risk of being quarantined.
Acting as a Devil’s Advocate for Finance-Related Decisions
Through a healthy partnership, a skilled finance professional can respectfully challenge assumptions made by project leaders as to the project’s financial performance and phasings, leveraging lessons learnt from similar projects. Through this partnership, project leaders can re-examine any biases they may have regarding the project’s financial performance and accurately manage the budget.
Financial Management as a Tool for Decision Making and Planning
Through their inclusion in strategic discussions, a finance professional can incorporate all costs (including those not immediately obvious) in the project’s forecast to ensure project leaders understand the impact of their decisions. With a finance expert’s routine management of a project forecast against budget, project leaders can accurately assess whether trade-offs between capabilities and project support costs are required.
Effective Communication with External Stakeholders
A skilled finance professional can support conversations with external stakeholders on finance-related matters and help the project communicate effectively. By having someone who can ‘speak the same language’ as stakeholders, a project can assure external parties of the overall health of the project.
Financial management can be a daunting concept, but Parbery’s Cost and Finance team is here to help! Our services include:
- Developing cost models,
- Giving strategic financial advice,
- Undertaking financial analysis in support of procurements,
- Conducting affordability assessments, and
- Ensuring compliance with cost standards and governance frameworks.
If you would like to continue the conversation about Parbery’s Cost and Finance team, come and visit us at the Avalon Airshow from 25 to 30 March 2025 at Stand 2F1, Hall 2 or email us at admin@parbery.com.au
