Wednesday, 12 January 2011

Value for Money: Do the Maths!

In these financially constrained times, can there be any public service organisation that isn't seeking better value for money? To deliver more for less? It's a theme beset with problems, partly around the difficulty and pain of any type of change, but also because the concept is such a nebulous one anyway.

To understand why, it's sometimes helps to break down Value for Money (VfM) into the 3 E's: Economy, Efficiency and Effectiveness. The following formulae show the definitions and the "maths" associated with these three terms:


In simple terms, we buy input (materials, staff time, other resources), which then use processes to deliver outputs, and it's the value of these outputs that matter, not just the quantity of them. So the net result is that Value for Money is the value of output (normally referred to as outcomes), divided by the cost of input.

But herein lies the problem: value and money are not measured in the same currency. Money is pounds and pence (or some other coinage), whereas value in the public service arena is something very different. This not the case in the private sector, where despite some increase in social responsibility, the bottom line still rules and hence value generally means more money.

Value in public services is the difference we make, how we change or improve people's lives. It's something akin to what David Cameron talks about when he wants to measure happiness. But these are intangible things; we don't have any standard units of happiness, let alone any conversion formula between these and money.

Value by definition is subjective. Like beauty, it lies in the eye of the beholder. Value for one individual or group may be very different from value as perceived by another. A public park may be hugely valued by some, ignored by others, and regarded as a nuisance by yet others (e.g. because of noise or dog fouling). So any measure of value must recognise the context, and who is judging that value.

There's a lot more to say on this (watch this blog for continued discussion), but the starting point for any evaluation - notice the word Valu(e) in there - of public services or social impact has to be an understanding of stakeholder perspectives. How do different individuals and groups perceive value, and what changes for them? And how do we balance the positive and negatives to determine the overall impact of our services? Robert Burns wasn't a manager, but he put it well in his famous lines:
“O would some power the giftie gie us
To see ourselves as others see us”

Check my web site at www.real-improvement.com for more information and ideas.

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