We hear a lot of talk about the need to achieve value for money. But what is it and how do we know when we are there? In this first article of a two part series, we explore the basics of value for money in theory. In the second article, I will give some hints and tips from my own experience for measuring and achieving it in the real world.
Value for money, in short, is about getting the most of what we want with the limited resources that we have. This link between resources and outcomes is illustrated by what are often called the ‘three E’s’ of value for money.
- Economy is a measure of the resources that we use (e.g. money, our time) to generate the inputs (e.g. a venue, a trained facilitator) that we need for our work. So if we have two similar venues that we can use, with one costing £100 an hour and the other costing £120 an hour, then the first one is clearly better from an economy point of view.
- Efficiency is how well we translate these inputs into outputs. Outputs are things that we create, develop or organise as a way of achieving our aims, such as leaflets, workshops, training sessions or products of some kind. To be efficient, we need to use the minimum possible level of inputs to produce each output, subject to maintaining appropriate standards of quality.
- Effectiveness is the extent to which the outputs that we have generated lead to the outcomes that we want to achieve. Outcomes are the changes that our work has made to people’s lives, such as improved awareness, better health or changed behaviours. They are the end result of our work; the lasting difference that we have made.
The way in which the three E’s link together resources, inputs, outputs and outcomes is shown in the figure below.
In the social context, there is a fourth ‘E’ that is also important: Equity. When working to achieve specific outcomes, we need to make sure that they benefit all potential groups of beneficiaries, rather than just those that are easiest to reach or to engage with.
Value for money is a balancing act between the economy, efficiency, effectiveness and equity of our activities. It will not usually be possible to perform perfectly in each of these areas; rather, there will generally be a trade-off between one or more of them.
Value for money, therefore, is not an exact science. Rather, it is a subjective judgement that depends on the specific circumstances of each activity. There is also no absolute scale of what constitutes ‘good’ or ‘bad’ value for money. Instead, when considering whether or not we have achieved value for money in a particular activity or project, we need to ask ourselves three questions:
- What have we achieved and what resources have we used?
- If we had done things differently, could we have achieved the same thing while using fewer resources?
- Could we have achieved more by using the same resources in a different way?
If the answer to questions 2 or 3 is ‘yes’, then there is probably scope for improvement. The extent to which we have achieved value for money depends on (a) how much fewer resources we could have used to achieve the same thing or (b) how much more we could have achieved using the same resources. In broad terms, if this gap is small, then we have still achieved reasonable value for money; if it is large, then we have not.
In the second article of this two part series, I will look at the practical implications of value for money and how to achieve it in the real world.