“Do not buy what you want but what you need, what you do not need
is dear at a farthing” Cato the Elder (Roman politician)
An age of accountability
The developing world is now entering an age of accountability, with governments
under increasing pressure to be more transparent. This is accompanied by a growing
realisation that it is not acceptable for a government to spend public money
without demonstrating value for money (VFM). VFM is of key importance to all
public sector stakeholders but it matters most to the citizen, who, in addition
to paying taxes benefits or suffers from efficient or inadequate public services.
Given the forthcoming budget, and the usual intense debate at this time of
year as to how the Government should spend a finite level of resources, it is
perhaps timely that we should turn our thoughts to the concept of the achievement
of value for money with regard to public expenditure.
What is Value for Money?
The term 'value for money' is widely used but often misunderstood. It is made
up of three elements known as the three 'Es': economy, efficiency and effectiveness.
Economy, where appropriate resources are acquired at the least cost, is the
one most often associated with VFM. In contrast, efficiency is about obtaining
maximum output from resources. Alternatively, a service organisation may be
regarded as efficient if the minimum level of energy necessary is used for a
given output. Effectiveness is the most important element and is associated
with ensuring that the output achieves the expected outcome. A good way of assessing
effectiveness is to examine whether policy objectives have been met.
In summary, the art of achieving value for money involves identifying instances
where the use of resources is either wasteful or ineffective and which can be
freed up and made available for use elsewhere.
When assessing VFM ask yourself three questions:
- Economy - can the same be achieved for less money?
- Efficiency - can more be done for the same money?
- Effectiveness - have the objectives of the service been achieved?
In an ideal world, good service delivery will be economic, efficient and effective,
though it is possible to have efficient and economic services which are ineffective
in achieving objectives. For instance, a project set up to distribute drugs
in an area with a TB outbreak: the drugs may be procured inexpensively (economy)
and may be quickly distributed to those who need them (efficiency). However,
if the strain of TB in question is resistant to the drugs being distributed,
then the service, which is supposed to cure TB, is not effective. In other words,
there is no benefit in doing wrong things well.
The importance of effectiveness
Effectiveness is the most crucial of the 3 'Es' but the most difficult to assess.
While the assessment of whether policy objectives have been met may seem relatively
simple, in practice it may be very difficult. Indeed sometimes policy objectives
do not exist, or they lack clarity. Where no clear policy objectives exist for
programmes involving large sums of money, a serious lack of control in an organization
may be indicated.
If policy objectives are reasonably well defined, there should also be an adequate
system of measurement for evaluating the effectiveness of an organisation's
policies. Measuring effectiveness is not easy and performance measures often
have to rely on subjective information such as user feedback. Indeed some areas
do not lend themselves to definitive judgment. For example, it is difficult
to determine the success of an alcohol or drug addiction programme merely by
counting the number of patients with reduced intake. Other social factors, such
as the degree of family support, blur the evaluation of such programmes.
Thus, a government that wishes to become more effective in the long run should
ensure that it has:
- clear objectives for each major departmental activity or programme;
- reasonably accurate performance indicators to measure how well policy objectives
are being met;
- a reporting system to inform, for example, politicians and senior managers
on the outcome of policies;
- alternative policy ideas when necessary.
There are many techniques for examining VFM but it should be stressed that,
more than anything else, VFM is an attitude of mind. The most important action
point for any government wanting to secure VFM is one hundred per cent commitment
from politicians and managers to its goals. If a corporate vision and approach
is adopted and staff buy into this vision, then VFM stands a far better chance
of being achieved.
What better time to reflect on the importance of VFM than at budget time? As
every Mama knows, it important to make every bob stretch as far as it can when
running the household. Equally the same applies to government.
