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Asset Management

Defence manages some $51.5b in total assets of which the largest shares are $31b in specialist military equipment, $14b land, buildings, plant, equipment and infrastructure and approximately $4b in inventories. Other assets under Defence's management include intangibles and heritage and cultural assets.

In 2002-03, Defence continued implementation of an improved asset management and reporting framework which began in February 2001. The framework seeks to better:

This framework is consistent with the Australian National Audit Office (ANAO) Asset Management Handbook, published in 1998. A key objective of the framework is to assist the department in complying with section 44 of the Financial Management and Accountability Act 1997 which specifies that the Chief Executive is responsible for promoting the efficient, effective and ethical use of resources.

002-03 Achievements

During 2002-03, the responsibility for reporting all specialist military equipment was transferred from the various capability managers to the Defence Materiel Organisation. This transfer implemented a critical element of the Defence business model that identified the Defence Materiel Organisation as the specialist military equipment asset owner and manager for Defence. As part of this new asset management responsibility, workshops were conducted during the year with all systems project offices in the Defence Materiel Organisation to explain the implications of this new role, particularly in terms of financial reporting and improved understanding of the cost of asset ownership. The consolidation of specialist military equipment asset management into a single organisation enables improved visibility of both financial management issues and cost of ownership performance.

The Defence Capability and Investment Committee played an increasing role in the management of key assets, particularly major military platforms, with the Defence Capability Plan being integral to Defence asset management and planning. The Defence Capability Committee reviews annually the expected lifecycles and planned withdrawal dates for all major items of specialist military equipment.

The asset acquisition process, including whole-of-life costs, is being refined through a strengthening of the planning, estimation, risk assessment and approval process prior to acquisition. This will provide improved management of asset acquisition, including cost and delivery delay aspects. An improved capability costing model is being developed.

2002-03 also saw the commencement of the transfer of the management and reporting of all non-specialist military equipment assets to the Corporate Services and Infrastructure Group. This process involves the consolidation of registration of all assets into Defence's primary asset register, the Resource and Output Management Accounting Network. It has improved the accuracy of records and supported decision making in regard to asset acquisition and divestment programs. This consolidation process should be substantially completed by the end of 2003-04. Land, building and infrastructure assets continue to be progressively revalued on a three-year cycle by the Australian Valuation Office.

Work continued on inventory management to address ANAO concerns. This is an extensive task which is likely to take several years or more given the very large number of line items in inventory and the consequent resources required.

Over the past two years, position accounts that record holdings of repairable items (part of specialist military equipment) on the Standard Defence Supply System have been subject to review as part of a Defence Materiel Organisation strategy to verify all fixed assets recorded in that system. A significant amount of work has been undertaken in 2002 and 2003 and the integrity of repairable item holdings has improved. Further work is progressing, as areas of uncertainty still remain. The upgrade of the supply system in July 2003 assisted in maintaining the accuracy of these holdings.

Management of leases has been improved with the creation of a centralised lease register and a process for review of classifications and values. A new Chief Executive's Instruction has been developed providing direction on the management of leases and with the aim of improving the quality of reporting. Leases represent forward commitments for Defence and the Commonwealth. They can act as an alternative financing vehicle for assets and may involve the sale and leaseback of an asset previously owned by Defence.

The Defence estate is currently subject to a strategic review to identify opportunities for rationalisation of Defence bases, sale of surplus property and reduction in facility operating costs.