A risk mitigation plan for potential hitches can help in defence acquisitions
Maj. Gen. Mrinal Suman (retd)
A risk is a measure of danger or a threat that arises out of future uncertainties. All plans are based on certain premises and a premise is a belief. It presupposes that all elements will perform and deliver as anticipated. However, future never follows the predicted pattern. When deviations occur, the plans go awry and threaten viability of a project. Plans can be salvaged and put back on track only in case the likely hurdles had been foreseen and contingency plans evolved to overcome them. Defence acquisitions are a long-drawn process involving a host of agencies with myriad disciplines. Despite the best efforts, things do not move as expected. Hence, risk management acquires immense importance.
Sluggish modernisation of the Indian armed forces has been a cause of serious concern to all who are concerned with national security. One of the primary reasons for non-conclusion of contracts and surrender of funds is India’s inability to ensure that all procurement proposals get processed as per the laid down guidelines and without getting afflicted with infirmities. As per a rough estimate, less than 50 per cent proposals fructify into supply orders. Most have to be aborted mid-way due to various failings including non-adherence of policy provisions at different stages. The magnitude of the problem can be gauged from the fact that 41 procurement proposals had to be withdrawn solely due to the inadequacies of the qualitative requirements during 2011-12.
Every time a proposal is withdrawn midway, the country and the services suffer. Initiation of a revised proposal entails a delay of three-five years. In the interim, the services remain deprived of the equipment. Allotted funds remain unexpended and have to be surrendered. Worse, the country has to suffer cost escalation due to inflation. Therefore, it is in our national interest to ensure that all procurement proposals result in contracts without any hitch.
It is often said that ‘if anything can go wrong, it will’. Even the best of the plans rarely follow the premeditated path. There will always be holdups, glitches and delays. It is prudent to anticipate possible snags well in advance and be prepared for all such eventualities. It is essential to be organised for initiating restorative plans before the procurement proposals suffer irreparable damage and have to be abandoned. To be able to ensure that, it is necessary to be aware of the likely risks and their diagnostic needs. It is only then that the remedial measures can be prescribed.
Key Imperatives of Defence Acquisitions
A defence acquisition system is a management process by which a nation provides effective, affordable and timely defence systems and equipment to its armed forces. A large number of inter-dependent variables have to be factored in to provide required equipment to the armed forces in an expeditious and cost-effective manner. There are three basic imperatives that dictate evolution of all acquisition procedures – the acquired equipment must satisfy the Services Qualitative Requirements (SQR) specified by the armed forces; the required quantity must be delivered as per the mandated schedule; and the cost must be kept within the limits of the sanctioned budget. As shown in Illustration 1 below, these key attributes are intrinsically interlinked and are mutually dependent. For example, a defence system loses its value if it fails to achieve SQR or is not delivered within the required timeframe or becomes unaffordable by exceeding the budgetary provisions.
Although efforts have been made by the experts to explore nature, degree and extent of inter-se relationship between the attributes, no standard equation has so far been evolved. For, every acquisition programme has its own peculiarities with numerous variables with varying significance. In addition, the attributes undergo changes during the long gestation period of an acquisition project. For example, in case an operational emergency arises, importance of cost element gets reduced whereas performance and delivery schedule acquire added significance.
Satisfaction of all the attributes is vital for the success of an acquisition project. Undoubtedly, it is always an uphill task as every acquisition programme entails accomplishment of a multitude of activities, both concurrently and sequentially. Numerous uncertainties afflict every activity. More worrisome is the fact that even an insignificant looking hitch can impact these attributes, thereby endangering the project.
Identification of risks that can imperil an acquisition programme is by far the most important and difficult task. It requires deep insight and a thorough knowledge of the complexities of the processes involved. It is always a challenge to be able to foresee as to what can go wrong at each stage of the project and identify the causative issues. It is only after that the functionaries are in a position to explore measures to prevent their occurrence or to minimise the adverse effects.
Risk management is a programme management tool for effectively managing future uncertainties associated with defence acquisitions. The primary objective is to establish a strategy that ensures achievement of the three key imperatives of performance, schedule and cost. According to the Risk Management Guide (for defence acquisitions) issued by the US Government, risk management is the overarching process that encompasses identification, analysis, mitigation planning, mitigation plan implementation and tracking. Further, it includes disciplines like programme management, systems engineering, earned value management, production planning, quality assurance, logistics, system safety and mishap prevention.
Risk areas are influenced by threat analysis, operational requirements, technologies involved, design/engineering challenges, manufacturing competence, existing support systems and ability to adhere to cost and delivery schedules. Key attributes are vulnerable to numerous potential risks. To start with, it is quite difficult to estimate financial implications correctly at the proposal stage. Estimated project costs invariably turn out to be faulty. In addition, evolving geo-strategic milieu may force reprioritisation of acquisition proposals and redirection of funds. Five years ago, the case for the acquisition of 126 fighter aircraft had to be abandoned at the contract signing stage due to the shortage of funds as the initial estimates turned out to be grossly inadequate.
A vast majority of Indian defence acquisition cases struggle to achieve SQR. It may be due to unrealistic performance demands; changes by users due to altered threat analysis; failure to anticipate challenges in technology development; lack of experience and knowledge to develop and configure systems; and non-availability of expected imported technology. Similarly, it is very rare that an acquisition programme follows the planned timelines. Delivery schedule go awry due to overambitious rate of production based on faulty estimations; failure of manufacturing base; poor vendor selection; denial of critical high-tech components by foreigners; and failure to develop alternate indigenous/foreign sources.
As risks are associated with all facets of a programme, it is essential to develop an interactive strategy to evolve a comprehensive methodology for their management. A risk management plan includes all activities related to the identification of risks, analysis to track the causal issues and their treatment. Preventive measures to avert their occurrence and, failing which, steps to minimise their adverse effect have to be well thought-through and planned. Resources have to be pre-assigned accordingly. As over-confidence can breed complacency, it is prudent to be extra cautious. Nothing should be taken for granted.
Diligent identification of risks is the key to the formulation of a sound risk management plan. Risk identification should begin concurrently with the commencement of a project and should continue throughout its currency with regular reviews. Each ingredient of the programme must be examined assiduously to catalogue associated probable causes.
Once all the risks are identified and listed, a systematic analysis is carried out of each item to ascertain likelihood of its occurrence and likely severity of its impact on the progress of the project. Risk analysis defines each risk in detail and helps determine their relative criticality to enable prioritising of risk mitigation measures. A risk with potential to disrupt progress of the programme has to be dealt with in a definite manner, even if the chances of its occurrence are less. On the other hand, risks having high-probability but low-impact deserve different treatment. See Illustration 2.
In order to prevent occurrence of high-impact risks that can imperil a project, efforts are made to explore ways of averting them to the maximum extent possible. This is achieved through affecting changes in plans, processes, procedures, concepts and specifications. At times, users are approached to reconsider the performance parameters in case they are considered to be impractically ambitious.
Since it is well-nigh impossible to eliminate all risks, a risk mitigation plan is prepared in advance to mitigate their adverse impact. It is an action plan that contains details of specific steps to be taken in various contingencies by duly nominated functionaries with necessary resources earmarked for the purpose. In other words, a risk mitigation plan seeks to discern an impending risk at the earliest and strives to take prompt steps to minimise the damage. For that, close and continuous monitoring is essential for timely corrective steps. Once the mitigation plan gets triggered, systematic appraisal has to be carried out to measure its effectiveness and determine further curative steps, if considered necessary.
The Way Forward
In the case of defence acquisitions, the causative factors of risks can be grouped under three broad categories – operational uncertainties, technological setbacks and human limitations. Therefore, operational plans must be based on realistic threat assessment and not on speculative mission objectives. Operational uncertainties must be minimised by preparing focused and enduring perspective plans. Appraisal of technology (both available and under-development) should be based on realistic expectations rather than over-ambitious and wishful projections. Slippages due to human inadequacies can be minimised only if the functionaries are delegated adequate powers and held accountable for their performance. Finally, adequate margins of errors in delivery schedules and funding support must be inbuilt in all programmes to cater for unexpected challenges.
A risk is a chance of a problematic occurrence. Risk management planning is an interactive process that helps avoid panic-reaction. It amounts to carrying out of a cause and effect analysis in anticipation. As the maxim goes – ‘A stitch in time saves nine’. It is ideal to initiate recognition of risks concurrently with the formulation of the acquisition proposal. Early identification of risks and continuous monitoring are two essential ingredients of an effective risk management strategy. It is only then that the likelihood of the occurrence of risks can be minimised and the severity of their impact reduced. Risk management is unquestionably far better than crisis management.