Value For Money

Value For Money (VFM) has long been defined as the relationship between economy, efficiency and effectiveness, sometimes known as the ‘value chain’.

The four elements of VFM

Value can be measured in many ways. Traditionally, value is interpreted as cost effectiveness or something similar. Today, the view of value is more likely to encompass the concept of ‘perceived value’, which encompasses satisfaction, quality, availability. More advanced models introduce the concept of variation into the equation as something that detracts from value (dependability)

Economy is the price paid for what goes into providing a service, for example, the cost per hour of care workers; the rent per square metre of accommodation.

Efficiency is a measure of productivity – how much you get out in relation to what is put in. For example, the efficiency of services such as rent collection may be measured by the cost of the service compared to the rent roll. Similarly, tenant participation costs may be expressed as an annual sum per tenant. Efficiency is primarily associated with the process and delivery of procurement.

Effectiveness is a measure of the impact achieved and can be quantitative or qualitative. For example, how many people were prevented by home care services from needing residential care (quantitative); satisfaction levels among different sections of the community with tenant participation arrangements (qualitative), and so on. Outcomes should be equitable across communities, so effectiveness measures should include aspects of equity. Effectiveness is primarily associated with the outcomes for customers.

VFM is high when there is an optimum balance between all three – relatively low costs, high productivity and successful outcomes. The Improvement and Development Agency (IDeA) in its procurement guidance defines best value for money as the ‘optimum combination of whole-life costs and benefits to meet the customer’s requirement’.

The key principles that underpin a positive approach to VFM are as follows:

• VFM work undertaken by organisations should involve all affected stakeholders as well as considering individual service users;
• costs alone do not reflect value; local context and quality of service need to be taken into account in arriving at VFM judgements. Clearly, the application of benchmarking analysis is an important tool in the identification and measurement of VFM, but it cannot be used in isolation ;
• numerical data on costs and performance provide a starting point for questions, not answers;
• VFM judgements need to allow for local policy choices (within a national policy context) about priorities and standards of service;
• judgements should address current performance in achieving VFM, how well VFM is managed and improved over time and the extent to which a long-term approach is taken; and
• judgements should rely primarily on evidence showing the outcomes achieved and the effectiveness of activity to improve VFM. Although it is necessary to look at the processes used to deliver and improve VFM, it is their effectiveness that really matters.

Outcomes of a VFM review

• an understanding of your definition of Value
• a balance between input costs and service outcomes
• linking efficiency, effectiveness and economy to Value
• confidence in much of your services
• identified improvement areas and opportunities

When a VFM review is most appropriate:

• preparing for inspection
• post inspection organisational optimisation
• prioritising a limited resource
• seeking KLOE compliance
• wanting the business to be challenged
• seeking a way forward to satisfy stakeholder demands

Back to top of page