What is the concept of value of money?

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.

pwc.com - Value for Money (VfM) in the public sector - PwC

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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

Win-win

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

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