The Ministry of Defence (MoD) has big plans for both the Navy and UK shipyards. Those plans could end up totalling tens of billions of pounds over the next six or seven years, even as the MoD is promising to save billions in its endeavour to update equipment. Fortunately for us, there are plenty of strategic business planning lessons to be learned here.
The BBC reports that the government will purchase a minimum of five brand-new Type 31E frigates at a cost of £250 million each. The ships will be built at different shipyards across the UK over the next several years, with plans to have them in the water by 2023. If all goes well, the government hopes to keep the first wave of new frigates for itself and then continue production in order to sell the ships to other countries.
BBC defence correspondent Jonathan Beale is sceptical of the plan. He lists a number of issues that he believes need to be addressed by the MoD. All are issues that the MoD has a poor track record with:
Will there be enough work to keep newly expanded UK shipyards busy?
Do foreign nations really want to buy British warships?
Can the costs truly be contained by a cap?
Does the MoD really have the budget for more than £1.2 billion in new ships?
Beale correctly points out that the MoD has a long history of running over budget. However, the government’s response to such criticisms rests on a decision to cap the amount it is willing to pay for each ship at £250 million.
Lessons for Business Owners
Solid business development and strategic planning go hand-in-hand. If the MoD were a private sector business, what they appear poised to do would be risky on multiple fronts. First, it is probably not a wise idea to promise to build more frigates than the Royal Navy needs without serious commitments from foreign buyers. It is not like shipyards can easily dial back production once they get started.
Next, the MoD has to find tens of billions of pounds in savings in order to cover the cost of the new frigates without blowing up the budget. Until the pound recovers from its 18-month slide, budgetary constraints are going to continue to be a problem.
Finally, the MoD is currently in the midst of replacing their Type 23 frigates with Type 26 ships now being built in Glasgow. Wouldn’t it be better to finish the Type 26 programme before even thinking about 31E frigates?
Strategic business planning involves assessing the big picture from every possible angle. It is about taking the big picture and plugging in all the details that will make or break it. The MoD plan will be implemented because the government doesn’t have to worry about running out of money. Private sector businesses do not have that luxury. They need to be careful about every pound spent compared to its earning potential.
BBC – http://www.bbc.com/news/uk-41171515
By Peter Smith.
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