Value for money (VFM)
In today’s climate of austerity, most people are concerned with getting Value for Money (VFM), but what is this? This is usually in the eye of the beholder and for example, I may be prepared to pay more for a better quality of product or service, but other times it may be the cheapest possible deal to get me from A to B with no frills.
In business, for shareholders, business owners and managers operating in a competitive world, there must be a clear definition.
In this context, value for money is about “Obtaining the maximum benefit with the resources available.”
This means is achieving the right local balance between Economy, Efficiency and Effectiveness, (the 3Es) which entails spending less, spending well and spending wisely.
Economy is what goes into producing a product or providing a service, such as the cost per hour of Staff or the rent per square metre of accommodation.
Efficiency is a measure of productivity i.e. how much you get out in relation to what is put in. For example, the number of products made by each member of staff per week or the amount of refuse collected per refuse-lorry.
Effectiveness is a measure of the impact that has been achieved, which can be either quantitative or qualitative. Examples include how many people purchased your product or service (quantitative), and feedback about how good your product or service is (qualitative). Also, sustainability is an increasingly important aspect of effectiveness.
Value for money is not about cuts. It can be achieved in different ways including:
- reducing costs (e.g. overtime costs, better procurement) for the same outputs
- reducing inputs (e.g. materials, energy, factory floor space) for the same outputs
- getting greater outputs with improved quality (e.g. extra service or productivity) for the same inputs
- getting proportionally more outputs or improved quality in return for an increase in resources
We have a way to achieve value for money (VFM) in your organisation and it is called process improvement.
Using a 5 step model (to operational excellence) to structure this process improvement process, we can certainly say that this programme is a way to excellent value for money!