Image credit: Corporal Jonathan King/Canadian Forces Support Group Imaging Services
by Ross Fetterly
CGAI Fellow
May 2022
Table of Contents
- Introduction
- Defence Resource Planning in Canada
- Ends = Ways + Means
- Distribution of the Defence Budget
- Translating Defence Budgets to Capabilities
- Adapting to the Indeterminate International Strategic Environment
- End Notes
- About the Author
- Canadian Global Affairs Institute
Introduction
“The past few years have been a reminder that stability is not the natural state of the international environment, that peace is not self-perpetuating, and that whole regions can descend suddenly into anarchy.”1
Russia’s most recent attack on Ukraine started on February 24, 2022. The attack has made evident that a well-trained military in a conflict is a significant advantage. This has significant implications for defence resource management in Canada. In effect, this Russian invasion of Ukrainian territory appears to be a reiteration of previous trans-European conflicts in the 20th century. This has both near- and long-term implications for Western governments and defence departments. As a NATO member, Canada can no longer continue cheap-riding off the United States’ security umbrella. Timely and effective management of defence resources has become a necessity.
Defence Resource Planning in Canada
“In attacking Ukraine, Vladimir Putin has provided concrete examples, at scale, of how technology is changing the character of war, and why legacy militaries will either evolve to meet these new challenges or face defeat.”2
The Canadian planning process in defence transforms resources into military capabilities in accordance with government policy. To fulfil government direction outlined in the current defence policy, resources are put through a deliberate business-process mechanism. The objective is to establish and execute a rational method of documenting organizational priorities and goals, while communicating them internally and addressing any perceived constraints. While the defence policy remains the framework under which defence is resourced, annual defence allocations can vary for several reasons. Figure 1 describes the process of translating federal guidance into annual defence funding allocations.
The Russian invasion of Ukraine began when President Vladimir Putin declared a “special military operation” on Ukrainian territory. This made clear that the Canadian funding model for defence in recent years is now outdated. In Canada, the often-protracted capital equipment procurement programs can span decades, with existing equipment often operated beyond their forecasted lifespan or obsolescence – making this process unresponsive to the 2022 international strategic environment dominated by the war Russia started with Ukraine.
The war in Ukraine has taught us that with technology transforming the methods of war, military organizations will either evolve to “meet new challenges or face defeat.”3 The conundrum in Canada, as with other nations, is that military capital equipment programs, recruitment, training and development and infrastructure programs can take years or decades from conception to capability delivery. This is illustrated in a recent analysis of NORAD modernization in which both the RCAF’s business plan and defence posture show there are “considerable strategic, institutional, and operational constraints facing the fulfilment of SSE and possible NORAD modernization.”4 The misalignment between near-term needs and the multi-year timeframe of delivery is succinctly articulated by the 1963 departmental ad hoc committee on defence policy’s report, entitled “Budgeting and Programming as Tools of Defence Management”:
“Military plans and programs involve substantial periods of time and are concerned with operational capabilities which are expressed in terms of forces, weapons, facilities and states of readiness. Defence budgets relate to a single year and are expressed in terms of money. There is, therefore, an important difference in time scale and language.”5
Ends = Ways + Means
In Western nations, the national strategy formulation process builds on the equation of ends = ways + means. This can be represented by the following:
- National objectives - Ends
- National strategic concepts – Ways
- Resources – Means
Implemented by defence management, it constitutes a bridge to the national economy and provides a broad outline for combat force operations. Consequently, the defence management system needs to align with both the nation’s economic system and the military’s requirements to implement government direction. The ends describe the objectives as well as the specific criteria for realization of the desired end state. This then shapes the means required to achieve the ends, including capabilities, resources and the composition of the military force. The ways in which this is achieved are determined by the centre of gravity: where the predominance of force is allocated.
Distribution of the Defence Budget
“The power of any government depends ultimately upon its finances.”6
The distribution of defence expenditure is divided into three main categories: personnel, capital and operations and maintenance. Funding is provided by statutory expenditure, which is spending that Parliament has approved through legislation, as well as grants and contributions. The defence budget consists of three main categories: capital, operations and maintenance (O&M) and personnel. These categories are funded through the federal budgetary process. Figure 2 illustrates the changes in the composition of Canadian defence expenditures, which have significant consequences. Capital funding provides the money to purchase new army, navy, air force and Special Forces capital equipment, such as armoured personnel carriers, naval vessels and fighter aircraft. Operations and maintenance funding is allocated to maintain that equipment, and finally, there is the money to pay for the personnel working in the military and in the defence department. Allocations within each category matter. Indeed, the manner in which the budget is allocated is as “clear a statement about a country’s defence posture as is the size of the defence budget.”7
With the defence budget acting as the constraint in expenditure, the primary expenditures are for personnel, O&M and capital. The inputs are military personnel and public servants, O&M in the form of consumables and services and capital additions of equipment and facilities. The objective is to maximize the output of people and capital equipment from a defined defence budget. Personnel, O&M and capital are all inter-related within a fixed defence budget. The more money spent on procurement of capital equipment, the less is available for personnel costs and vice-versa.
Managing defence resources effectively is a primary and ongoing challenge for defence leadership in Canada. The allocations between personnel, operations and maintenance and capital are of particular importance. Defence establishments are people-driven organizations. Consequently, personnel costs in a defence budget are often both the most significant and the least flexible expenditure category. The funding for military and departmental personnel, as well as operations and maintenance costs, provides both immediate and near-term capability. Operations and maintenance expenditures are payments for forces-in-being. The defence capital equipment program provides the resources to modernize and replace major capital equipment fleets and provides the military with long-term capabilities. Figure 2 illustrates this trade-off between 1950 and 2019.8
The chart vividly illustrates the significant swings that have occurred in defence funding allocations over the past five decades; in particular, the enduring dominance of people over capital equipment investment, as well as O&M. Nevertheless, at various times, efforts have been made to increase the proportion of defence funding on equipment. As capital equipment fleets age, operating and maintenance costs tend to increase, resulting in increased annual maintenance costs. Figure 2 expresses the dynamic between investing in capital equipment and people. Particularly since the early 1980s, the under-investment in new capital equipment over the long term has driven growth in maintenance and operating costs as the equipment ages.9 The conundrum is that the inability of governments and defence departments to fully spend their capital equipment procurement and maintenance budgets over a period of years can create a death spiral.10 It results in under-executing the defence capital equipment budget and creating a bow wave of future defence projects. The capacity limitations in the federal departments in Ottawa on increasing the number of major capital equipment programs restrict the number of such programs in progress. This is not simply a defence problem, but more a whole-of-government problem. Treasury Board, the Treasury Board Secretariat, Public Service and Procurement Canada and the Department of National Defence are all involved in the defence capital equipment process from approval to execution.
The stock of capital equipment in defence depends not on the capital investments made in a specific year, but on the overall stock of equipment available that year. The available stock of capital equipment is the result of cumulative effects of capital investments made over several years, including up to several past decades. That capital stock will increase as capital investment is made and will decrease when some of that stock is removed as it becomes technologically and militarily obsolete. Consequently, the net capital investment is positive when total investment exceeds the expenditure to replace the stock that is removed. In effect, capital investment in defence occurs over time and is not related to current military capabilities, but adds to the future stock of capital, which has everything to do with future capabilities. The consequence of neglecting capital expenditures, even in a single year, could result in reduced military capabilities over an extended time. Effectively managing the defence capital equipment program on time and on budget is becoming the centre of gravity for the combined organizations in the federal government responsible for defence capital equipment procurement.
Translating Defence Budgets to Capabilities
The conversion of defence funding to capabilities is illustrated in Figure 3.11 With the defence budget acting as the constraint in expenditure, the primary expenditures are for personnel, operations and maintenance and capital. This creates the inputs of people, consumables and services, as well as procurement of new capital equipment fleets. The objective of this process is to generate and sustain defence capabilities. The goal is to maximize the output of people and capital equipment from a defined defence budget. Personnel, O&M and capital are all inter-related within a fixed defence budget. The more money spent on procurement of capital equipment, the less is available for personnel costs and vice-versa.
Adapting to the Indeterminate International Strategic Environment
“Preparedness is more of a deterrent than is empathy, understanding, or demonstrations of good intentions.”12
The invasion of Ukraine was a literal crossing of the Rubicon13 for Russia. What Russia has done cannot now be undone. The government needs to prioritize increasing defence capacity and expenditure for the following reasons:
- Russia’s invasion of Ukraine and NATO military establishments in Europe on higher readiness;
- An increasing presence of both Russia and China in the Arctic;
- The bilateral North American Aerospace Defence Command needs modernization;
- The Canadian Armed Forces are under strength; and
- Defence capital equipment programs can take up to a decade or more to complete.
Adapting Canada’s defence establishment to a more contested world has three aspects. It needs to begin by preparing DND/CAF for growth by examining the current organizational structure to decide if it is sufficiently adaptable to support the current and evolving international security environment.
Public servants in the defence department and military personnel in the CAF provide the people to move programs. Consequently, the federal government needs to prioritize recruitment of public servants for defence and military personnel for the CAF. The military needs to prioritize recruitment and training of recruits by reallocating personnel to those functions in order to build up the military’s personnel strength. Acquisition of capital equipment in defence is generally the most visible aspect of defence spending because of the substantial annual allotment of taxpayer dollars and the industry’s expectations of obtaining contracts related to those planned expenditures. To maintain a viable and effective military capability under the current circumstances, it is essential to have an updated and more timely capital equipment replacement plan supported by a stable long-term financial commitment.
The Canadian military’s assessment of the performance of both Russia and Ukraine, and absorbing and implementing the operational and tactical lessons learned, will shape doctrine, as well as the tactics, techniques and procedures the Canadian military employs. War is back with us again. Canada has engaged internationally from peacemaking to conflicts in recent years, and now with war in Ukraine occurring along eastern NATO members’ borders, brings long-term increased security implications for Canada. Ukraine’s experience has taught us that a well-equipped and trained military is a significant advantage in a conflict. The second lesson is that defence-relevant strategic shocks can change rapidly and transform the conventional perspective of national defence institutions. The third lesson for Canada is that on the contemporary battlefield, military personnel also need to shorten the length of capital equipment projects to deliver modern and capable major capital equipment fleets to fight in the evolving security environment.
End Notes
1 J. Dobbins, R. H. Solomon, M. S. Chase, R. Henry, F. S. Larrabee, R. J. Lampert et al., Choices for America in a Turbulent World, (Santa Monica, CA: RAND Corporation, 2015), 15.
2 Noel Williams, “Insights for Marine (and beyond) Force Design from the Russo-Ukrainian War,” War on the Rocks, Austin, 2022, https://warontherocks.com/2022/03/insights-for-marine-and-beyond-force-design-from-the-russo-ukrainian-war/?utm_source=WOTR+Newsletter&utm_campaign=d3a918979f-EMAIL_CAMPAIGN_10_30_2018_11_23_COPY_01&utm_medium=email&utm_term=0_8375be81e9-d3a918979f-83327299.
3 Noel Williams, “Insights for Marine (and beyond) Force Design from the Russo-Ukrainian War,” War on the Rocks, Austin, 2022, https://warontherocks.com/2022/03/insights-for-marine-and-beyond-force-design-from-the-russo-ukrainian-war/?utm_source=WOTR+Newsletter&utm_campaign=d3a918979f-EMAIL_CAMPAIGN_10_30_2018_11_23_COPY_01&utm_medium=email&utm_term=0_8375be81e9-d3a918979f-83327299.
4 Binyam Solomon and Ross Fetterly, “North American Aerospace Defense Command (NORAD) Burden Sharing,” Defence Research and Development Canada – Centre for Operational Research and Analysis, Ottawa, 2021, 30, https://cradpdf.drdc-rddc.gc.ca/PDFS/unc366/p813527_A1b.pdf.
5 Ad Hoc Committee on Defence Policy, “Budgeting and Programming as Tools of Defence Management,” Ottawa: Department of National Defence, 1963.
6 Winston S. Churchill, A History of the English-Speaking Peoples: Volume I – The Birth of Britain (London: Cassell, 1956), 145.
7 John M. Treddenick, “Distributing the Defence Budget: Choosing Between Capital and Manpower,” in Issues in Defence Management, Douglas Bland, ed., School of Policy Studies, Queen’s University, Kingston, 1998: 57-82.
8 The data source for Figure 2 is the annual budget plan for the fiscal years from 1950 to 2019.
9 Congressional Budget Office, “The Effects of Aging on the Costs of Operating and Maintaining Military Equipment,” Washington, DC, 2001, https://www.cbo.gov/sites/default/files/107th-congress-2001-2002/reports/agingcostsom.pdf.
10 Carlton White, “Avoiding the Death Spiral,” Defense Acquisition Research Journal, Defense Acquisition University, Fort Belvoir, VA, 2019, 16-19, https://www.dau.edu/library/defense-atl/DATLFiles/Mar-Apr_2019/White.pdf.
11 Treddenick, 60.
12 Victor Davis Hanson, The Father of us All: War and History (New York: Bloomsbury, 2020), 48.
13 The crossing of the Rubicon refers to when Julius Caesar in 49 B.C.E had his troops pause at a bridge and debated whether to cross the Rubicon River, which separated Cisalpine Gaul from the Italian mainland. By crossing into Italy, Caesar passed a momentous point of no return – similar to that of Putin in attacking Ukraine in 2022.
About the Author
Ross Fetterly retired in 2017 from the Canadian Forces after a 34-year career as the Royal Canadian Air Force’s director of air comptrollership and business management. He previously served as the military personnel command comptroller, and in other senior positions with the Department of National Defence Assistant Deputy Minister (Finance).
Retired Col. Fetterly completed a tour in February 2009 as the chief CJ8 at the NATO base headquarters at Kandahar airfield, Afghanistan, where he was responsible for finance, contracting and procurement. While deployed he wrote a paper entitled Methodology for Estimating the Fiscal Impact of the Costs Incurred by the Government of Canada in Support of the Mission in Afghanistan with staff from the Parliamentary Budget Office. Col. Fetterly was employed as the deputy commanding officer of the Canadian contingent in the United Nations Disengagement Observer Force in the Golan Heights during the second intifada in 2000-2001. He has served as an air force squadron logistics officer and as a finance officer at military bases across Canada.
An adjunct professor at the Royal Military College of Canada (RMC) department of management and economics, and a Senior Fellow with the Centre for Security Governance, Dr. Fetterly has a B.Comm (McGill), M.Admin (University of Regina) and an MA and PhD in war studies from RMC. His PhD fields of study included defence economics, defence policy and defence cost analysis. His primary research focus is defence resource management. Dr. Fetterly also teaches courses in financial decision-making, defence resource management and government procurement at RMC. Through his company, Ross Fetterly Consulting Inc., he has taught a defence resource management course and a business planning course internationally for the Department of National Defence to senior military officers and defence executives in developing countries.
Canadian Global Affairs Institute
The Canadian Global Affairs Institute focuses on the entire range of Canada’s international relations in all its forms including (in partnership with the University of Calgary’s School of Public Policy), trade investment and international capacity building. Successor to the Canadian Defence and Foreign Affairs Institute (CDFAI, which was established in 2001), the Institute works to inform Canadians about the importance of having a respected and influential voice in those parts of the globe where Canada has significant interests due to trade and investment, origins of Canada’s population, geographic security (and especially security of North America in conjunction with the United States), social development, or the peace and freedom of allied nations. The Institute aims to demonstrate to Canadians the importance of comprehensive foreign, defence and trade policies which both express our values and represent our interests.
The Institute was created to bridge the gap between what Canadians need to know about Canadian international activities and what they do know. Historically Canadians have tended to look abroad out of a search for markets because Canada depends heavily on foreign trade. In the modern post-Cold War world, however, global security and stability have become the bedrocks of global commerce and the free movement of people, goods and ideas across international boundaries. Canada has striven to open the world since the 1930s and was a driving factor behind the adoption of the main structures which underpin globalization such as the International Monetary Fund, the World Bank, the World Trade Organization and emerging free trade networks connecting dozens of international economies. The Canadian Global Affairs Institute recognizes Canada’s contribution to a globalized world and aims to inform Canadians about Canada’s role in that process and the connection between globalization and security.
In all its activities the Institute is a charitable, non-partisan, non-advocacy organization that provides a platform for a variety of viewpoints. It is supported financially by the contributions of individuals, foundations, and corporations. Conclusions or opinions expressed in Institute publications and programs are those of the author(s) and do not necessarily reflect the views of Institute staff, fellows, directors, advisors or any individuals or organizations that provide financial support to, or collaborate with, the Institute.
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