It is said that beauty is in the eyes of the beholder! The same could be said of value. What is value to me may be meaningless to you, depending on where you sit, and what your expectations are. Measuring value is therefore a big dilemma.
In the public sector especially, measuring value is one of the most contested area between the government and the governed (citizens). The government will try to present the projects delivered as of direct and great value to the citizens; most of the times overstretching the value delivered.
Where citizens are more enlightened and informed, this is countered as mere public relations. This could be because there are no standards of how that value can be measured. And even if there were standards, does a social contract exist? And if it exists, is it mutually understood by both parties?
So, what is value for money?
Value for money has been defined as a utility derived from every purchase or every sum of money spent. Value for money is based not only on the minimum purchase price (economy) but also on the maximum efficiency and effectiveness of the purchase.
The concept of Value for Money (VfM) in everyday life is easily understood as “not paying more for a good or service than its quality or availability justify”. In relation to public spending, it implies a concern with economy (cost minimization), efficiency (output maximization) and effectiveness (full attainment of the intended results). It must also support the value of equity.
Value for money is used interchangeably with synonyms such as:
- Optimal (optimization)
- Return on Investment (ROI)
- Things sold at a good price
- Where quality meets the price
- Quality to price ratio
The 4 Es in Value for Money
In an attempt to provide a standard for defining and measuring value for money, 3 E’s – economy, efficiency and effectiveness, were initially introduced and later a fourth E (equity). It is not the intention of this article to define the 4 E’s, but to explore how the 4 E’s can be deployed in the public sector.
Value for money tools
Various tools exist for ensuring value for money, such as:
- Stakeholder involvement at concept level. Public participation is expected for any government intervention, where value for citizens is conceived, articulated, and a social contract “signed”.
- Comprehensive budget (zero based vs incremental).
- Link indicators to the budget/costs. Usually, value for money can be measured by comparing at the granular level, the cost of delivering an output.
- Budget variance analysis. Once an expenditure budget has been approved by the citizens either directly or through their elected leaders, the public sector practitioner must have a way of ensuring that he does not exceed those budget limits.
- User surveys/feedback is a powerful tool that helps the implementer to hear from the beneficiary if indeed the social contract was fulfilled.
- Value for money audits. This is an independent practitioner’s evaluation. Different synonyms are used for value for money audit, such as – performance audits, technical audits, procurement audits, system audits, process audits etc. It is important to clearly define the scope of such audits, so as to get the right outcome.
Steps to achieve value for money
Watch out, value for money leaks!
Good intentions, ethical behaviour, adept planning does not always guarantee value for money. Value for money leaks, and therefore it is important to identify the typical leak points, which include:
- Poorly designed programs/projects
- Poor budgeting
- Sub-optimal implementation
- Inadequate monitoring and evaluation processes
- Weaknesses in procurement controls
- Theft and corruption
- Assets misappropriation
A public practitioner who is keen to deliver value, will work towards sealing these leaks, which can jeopardize value for money and thereby affect the social contract. And remember, that prevention is better than cure.
Challenges in public sector
Defining and measuring value for money is fraught with various challenges in the public sector such as.
- The public good problem - not always easy to value a public good, because money (cost) is not the only measure.
- Cost accounting - how do you do cost accounting in the public sector?
- Multiple stakeholders with different and unclear expectations complicate the measurement of value for money.
However difficult or seemingly impossible it is to articulate, plan, deliver and measure VfM in the public sector, a clear communication strategy is important. It is said that many times, value is deemed not to have been delivered because it is not declared. So, what are the minimums when it comes to communicating VfM?
- Determine the user of the communication - complex or a simple user? Informed or uninformed? Engaged or disengaged? Cynical or believing?
- Ensure common understanding of value for money. Define value at the onset, so as to avoid expectation gaps.
- Timely communication. What value is it if the communication is not on time?
- Corroborated by independent sources. An independent mono-eye is always more trusted than a subjective pair of eyes. Get someone else to validate value for money.
- Use the occasion to pick lessons learnt
It has been said, and rightly so, that whatever gets measured gets done. Conversely, whatever does not get measured, does not get done.
If you don’t know what value is, you may not realize when (if) you achieve it.
To ensure value for money, you should minimize expectation gaps with your stakeholders through active public and stakeholder participation so as to manage different expectations from different stakeholders. Remember that value is in the eye of the beholder.
The author is a partner with PricewaterhouseCoopers (PwC), based in Rwanda, where he leads the Government and Public Sector industry group.