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The Million Dollar Question: What is the Value for Money?

 

March 9, 2016

Value for Money is on the mind of every government official when implementing public sector projects. Whether it is in developing or developed nations, value for money (VfM) continues to be on the reform agenda. Saving money is a pretty daunting task, especially when country governments have high expenditure costs and rising debts. Lets dig a little deeper on what is VfM and how to improve its strategy.

The OECD describes Value for Money as a “full life-cycle cost of a product, service or work and quality (in the sense of fitness for purpose) in order to meet the end user’s/beneficiary’s requirements.” It essentially involves creating a balance between the ‘3E drivers’:

  • Economy – careful use of resources to reduce expenses
  • Efficiency – delivery of results while maintaining quality
  • Effectiveness – delivery of better results while maintaining good quality and reducing expenditures.

How can a government body achieve the ‘3E’s’?

First, from the ‘economy’ point of view, value for money can be achieved when the tender process is transparent and there’s an independent procurement agency enforcing standards and contract award procedures. Carefully choosing resources based on cost analysis also promotes fair and competitive bidding procedures.

The ‘efficiency’ driver in VfM can be enforced with reliable e-procurement technology, such as systems and portals. Investment in capacity building of civil servants and in technology ensures a “smooth functioning rules based system,” states the World Bank.

Lastly, ‘effectiveness’ can be measured by bench-marking best practices of different countries, sharing data through procurement portals, and engaging citizen participation to interact with the information.

Achieving VfM depends heavily on procurement laws, sound e-procurement systems and technology initiatives. Procurement laws are one of the biggest challenges for developing countries because they have inherited rigid systems and there is change resistance. This issue can be addressed by progressive activation feature in a GRP software solution. Tweaking a procurement system with new workflow and rules is not a difficult to task, and it’s done to reflect the reforms and changes on a political and economical scale.

So how can a government ensure Value for Money?

On a very basic level, one can prevent corruption by hiring honest civil servants and using efficient procurement systems. Accountability and transparency is enforced by actions of stakeholders and VfM is the best performance-measuring output.

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