## Thursday, May 24, 2012

### A perspective on "Value for Money" relationships

#### The constituents of "value for money"

Matrices can be a useful means of showing the results of different combinations of things In this matrix I show how three different performance attributes can be seen as the results of different combinations of change in unit costs and effectiveness.
Source: Department of Crude Measures

PS: DFID and ICAI documents talk about Value for Money (VfM) as being made up of three elements: Economy, Efficiency and Effectiveness. But if we take VfM literally, as being about a relationship between value and money, then two of these three elements don't belong. Economy is just about money and effectiveness is just about value. For more, perhaps too much, on ideas about VfM, see this list of documents at www.mande.co.uk

#### Another take on definitions

My client is faced with the task of comparing multiple diverse projects within a policy portfolio. I have to think about what sort of comparisons are possible in this context. I come up with the following matrix:
Applying this simple set of distinctions may not be so easy. At what point would you be able to say two or more interventions were the same kind and scale? Or that the outcomes of two or more interventions were the same kind and scale?

1. Interesting way to communicate that improvements can come from increased effectiveness or decreased unit costs. But I don't understand why the same effectiveness for decreased cost is seen to be improved efficiency, whereas more effectiveness for the same cost is not.

Part of the challenge is the different way these terms are used. Cost-effectiveness is often used as a synonym for efficiency - or efficiency is sometimes used to refer narrowly to cost per output (technical efficiency). How are you using the terms?

2. It is true that both 1 + 2 = 3 and 2 + 1 = 3

But it is not the case that a 180cm tall man weighting 78 kilos is the same as a man who is 78 cm tall and weighing 180 kilos!

There are two different dimensions of being measured here, in crude ordinal terms. The two combinations you refer to are very different positions in that space.

I had hoped the matrix itself would show how I was using the different terms (economy, efficiency, cost-effectiveness): as characteristics arising from different combinations of changes in unit costs and effectiveness (however the latter is measured)