What is Value for Money?
There is no single definition of Value for Money. Each organisation in International Development that is about to start on Value for Money journey should develop its own definition. There is no universal definition because each organisation has different mission, goals and outcomes.
What IS universal for all such organisations is that they are accountable to its stakeholders and Value for Money assessment (if done properly) will show stakeholders how well organisation uses its resources to deliver on its promise. Whatever that promise is.
Definition that most resonate with us at PME Academy is: Value for Money (or VfM) is a term used to describe an explicit commitment to ensuring the best results possible are obtained from the money spent.
The most common approach to Value for Money is 4Es approach.
4E approach to Value for Money
We may have a project that is economical but not effective, OR It can be effective but not economical. There is a possibility for a project to be economical and effective but completely fail in terms of equity.
This approach balances economy, efficiency, effectiveness and equity in decision making utilising thinking and frameworks found in economic and evaluation disciplines. 4E Value for Money approach can be looked at as compass that ensures all stakeholders that organisation or project is on the right course.
ECONOMY - Ensuring organisation buys required inputs of the appropriate quality at the right price. Focus in not solely on the price but best price to produce required outcome.
EFFICIENCY - Organisation convert inputs into outputs exercising strong control over the quality and quantity of outputs.
EFFECTIVENESS - Delivering outputs from an intervention to achieve the desired outcomes that are the in organisation mission.
EQUITY - Along with providing efficient delivery and cost- effective outcomes, organisation also aims to distribute program benefits equitably.
4Es APPROACH IS MULTIDIMENSIONAL and includes many different perspectives.
4Es APPROACH IS INTER-DISCIPLINARY - In the 4Es approach, economics and evaluation are both used to create frameworks and to gather valuable insights. It is important to be aware that neither discipline has all the answers and are best utilised when combined.
4Es APPROACH USES MIXED METHODS - An organisation has to be able to understand the story behind the numbers and to do that VFM assessment must rely both quantitative and qualitative methods. Using both quant and qual methods gives great perspective for telling a whole story.
4Es APPROACH USES EVALUATIVE REASONING for making transparent judgements from the evidence.
STEP 1 – CRITERIA – Establishing criteria or the dimensions of performance that are relevant and important to an evaluative judgement.
STEP 2 – STANDARD – Defining performance standards by asking what would be an excellent result for each criterion. Deciding on sources for evidence.
STEP 3 – ANALYSIS – Gathering and analysing evidence of performance by confronting the standard to reach agreed performance level.
STEP 4 – SYNTHESIS – Once evidence is gathered and analysed, synthesise the results to tell the complete story from the data and create a judgement.
CRITERIA – Criteria of merit or worth are selected dimensions of performance that are relevant to the organisation or a project. They describe at a broad level the aspects of performance that need to be evidenced to support an evaluative judgement about VfM.
STANDARD – Standard describes the level of performance of each criterion. Standards are set before analysis start and are based on goals, plans and organisation’s commitment to its stakeholders.
ANALYSIS – Gathering and analysing evidence of performance to reach common agreement on current performance standards using appropriate set of tools and techniques.
SYNTHESIS – Once evidence is gathered, synthesise the results to tell complete story from the data and create a judgement.
4Es APPROACH REQUIRES EVIDENCE to determine VfM of the organisation or a programme. Evidence can be found in these sources or methods:
· FINANCIAL REPORTS
· ORGANISATIONAL PROCEDURES
· ORGANISATIONAL GUIDELINES
· VARIOUS FRAMEWORKS
· CRM DATABASE
· PROJECT DOCUMENTS
· PAST AND FUTURE SURVEYS
· WORKSHOPS AND INTERVIEWS
· AND MANY OTHERS
It uses economy, efficiency, effectiveness and equity. Same as standard 4Es approach but has one dimension more - VfM Score.
4Es PLUS APPROACH RATES - performance of each criterion to determine VfM Score.
THE RESULT IS VfM SCORE - The best VfM approach investigates and then effectively communicate Value for Money of the organisation or a project to its stakeholders. VfM approach that uses VfM Scores informs about and communicates VfM in most comprehensive way possible.
Sometimes organisations can’t find the adequate benchmark to compare how they are doing against similar organisations or similar projects in terms of economy, efficiency, effectiveness and equity. And there is where 4E Plus Value for Money approach comes in. It allows organisation to measure how well are they performing as a whole while scoring their criteria. Organisation then can compare how good each criterion compared to other criteria.
Using VfM Scores in VfM assessment is not required but can be very useful. VfM Scores add a new level of understanding to VfM assessment. This approach allows to compare each of 4Es segments to each other allowing stakeholders to easily see which of the 4Es is the best and which ones need more attention and effort.
4E Value for Money approach will allow organisation and all the stakeholders unprecedented level of clarity of the organisational efforts to deliver on promised outcomes. 4E Value for Money Plus will take it to a new level.
Value for Money assessment gives International Development organisations and its stakeholders most comprehensive framework to understand economy, efficiency, effectiveness and equity efforts of the organisation.
It will show what is already great, and what could be better.
It will bring clarity to organisation data collecting process and also change the way data is gathered and used.
But most important benefit of the Value for Money assessment is discovering benefits that organisation is producing for its partners, individuals and even societies. Some of the benefits are obvious but with VfM approach your view will expand and you could be pleasantly surprised.
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