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

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 ... 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Inthepublicsectorespecially,measuringvalueisoneofthemostcontestedareabetweenthegovernmentandthegoverned(citizens).Thegovernmentwilltrytopresenttheprojectsdeliveredasofdirectandgreatvaluetothecitizens;mostofthetimesoverstretchingthevaluedelivered.Wherecitizensaremoreenlightenedandinformed,thisiscounteredasmerepublicrelations(orPRinshort).Thiscouldbebecausetherearenostandardsofhowthatvaluecanbemeasured.Andeveniftherewerestandards,doesasocialcontractexist?Andifitexists,isitmutuallyunderstoodbybothparties?  Totalreadingtime:5min So,whatisvalueformoney? Valueformoneyhasbeendefinedasautilityderivedfromeverypurchaseoreverysumofmoneyspent.Valueformoneyisbasednotonlyontheminimumpurchaseprice(economy)butalsoonthemaximumefficiencyandeffectivenessofthepurchase. TheconceptofValueforMoney(VfM)ineverydaylifeiseasilyunderstoodas“notpayingmoreforagoodorservicethanitsqualityoravailabilityjustify”.Inrelationtopublicspending,itimpliesaconcernwitheconomy(costminimization),efficiency(outputmaximization)andeffectiveness(fullattainmentoftheintendedresults).Itmustalsosupportthevalueofequity. Valueformoneyisusedinterchangeablywithsynonymssuchas:  Optimal(optimization) ReturnonInvestment(ROI) Thingssoldatagoodprice Wherequalitymeetstheprice Qualitytopriceratio Win-win The4EsinValueforMoney Inanattempttoprovideastandardfordefiningandmeasuringvalueformoney,3E’s–economy,efficiencyandeffectiveness,wereinitiallyintroducedandlaterafourthE(equity).Itisnottheintentionofthisarticletodefinethe4E’s,buttoexplorehowthe4E’scanbedeployedinthepublicsector. Valueformoneytools Varioustoolsexistforensuringvalueformoney,suchas: Stakeholderinvolvementatconceptlevel.Publicparticipationisexpectedforanygovernmentintervention,wherevalueforcitizensisconceived,articulated,andasocialcontract“signed”. Comprehensivebudget(zerobasedvsincremental). Linkindicatorstothebudget/costs.Usually,valueformoneycanbemeasuredbycomparingatthegranularlevel,thecostofdeliveringanoutput.  Budgetvarianceanalysis.Onceanexpenditurebudgethasbeenapprovedbythecitizenseitherdirectlyorthroughtheirelectedleaders,thepublicsectorpractitionermusthaveawayofensuringthathedoesnotexceedthosebudgetlimits. Usersurveys/feedbackisapowerfultoolthathelpstheimplementertohearfromthebeneficiaryifindeedthesocialcontractwasfulfilled.  Valueformoneyaudits.Thisisanindependentpractitioner’sevaluation.Differentsynonymsareusedforvalueformoneyaudit,suchas–performanceaudits,technicalaudits,procurementaudits,systemaudits,processauditsetc.Itisimportanttoclearlydefinethescopeofsuchaudits,soastogettherightoutcome. Stepstoachievevalueformoney Agreewhatvalueformoneyiswithyourstakeholders Determinethatitisachievable.Plantoachievevalueformoney Howwillyoumeasurevalueformoney?Tools? Measurevalue.Beobjective.Needexternalindependenteye? Communicatevalueformoney.How? Reviseyourplansbasedonlessonslearnt    Watchout,valueformoneyleaks! Goodintentions,ethicalbehaviour,adeptplanningdoesnotalwaysguaranteevalueformoney.Valueformoneyleaks,andthereforeitisimportanttoidentifythetypicalleakpoints,whichinclude: Poorlydesignedprograms/projects Poorbudgeting Sub-optimalimplementation Inadequatemonitoringandevaluationprocesses Weaknessesinprocurementcontrols Theftandcorruption Assetsmisappropriation  Apublicpractitionerwhoiskeentodelivervalue,willworktowardssealingtheseleaks,whichcanjeopardizevalueformoneyandtherebyaffectthesocialcontract.Andremember,thatpreventionisbetterthancure. VfMchallengesinpublicsector Definingandmeasuringvalueformoneyisfraughtwithvariouschallengesinthepublicsectorsuchas. Thepublicgoodproblem-notalwayseasytovalueapublicgood,becausemoney(cost)isnottheonlymeasure.  Costaccounting-howdoyoudocostaccountinginthepublicsector? Multiplestakeholderswithdifferentandunclearexpectationscomplicatethemeasurementofvalueformoney. CommunicatingVfM  Howeverdifficultorseeminglyimpossibleitistoarticulate,plan,deliverandmeasureVfMinthepublicsector,aclearcommunicationstrategyisimportant.Itissaidthatmanytimes,valueisdeemednottohavebeendeliveredbecauseitisnotdeclared.So,whataretheminimumswhenitcomestocommunicatingVfM?  Determinetheuserofthecommunication-complexorasimpleuser?Informedoruninformed?Engagedordisengaged?Cynicalorbelieving? Ensurecommonunderstandingofvalueformoney.Definevalueattheonset,soastoavoidexpectationgaps. Timelycommunication.Whatvalueisitifthecommunicationisnotontime?  Corroboratedbyindependentsources.Anindependentmono-eyeisalwaysmoretrustedthanasubjectivepairofeyes.Getsomeoneelsetovalidatevalueformoney. Usetheoccasiontopicklessonslearnt   Inconclusion Ithasbeensaid,andrightlyso,thatwhatevergetsmeasuredgetsdone.Conversely,whateverdoesnotgetmeasured,doesnotgetdone.Ifyoudon’tknowwhatvalueis,youmaynotrealizewhen(if)youachieveit.Toensurevalueformoney,youshouldminimizeexpectationgapswithyourstakeholdersthroughactivepublicandstakeholderparticipationsoastomanagedifferentexpectationsfromdifferentstakeholders.Rememberthatvalueisintheeyeofthebeholder.   Contactus MwangiKaranja Partner,PwCRwanda Tel:+250(252)588203/4/5/6 Email Followus Industries Consumerandindustrialproductsandservices Energy,utilitiesandmining Financialservices Governmentanddevelopmentpartnerservices Governmentandpublicsector Industrialmanufacturing Infrastructureandutilities Services Advisoryservices Auditandassurance Consultingservices Dealsservices Governmentandpublicsector Peopleandorganisation Taxservices Insights Publications Pressreleases Careers Aboutus Contactus Globalthirdpartycodeofconduct Humanrightsstatement Ouroffices Subscriptions Ethicscomplaints © 2010-ThuJun2319:12:13UTC2022PwC.Allrightsreserved.PwCreferstothePwCnetworkand/oroneormoreofitsmemberfirms,eachofwhichisaseparatelegalentity.Pleaseseewww.pwc.com/structureforfurtherdetails. 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