What Does Vfm Mean?

Introduction

Value-for-money (VfM) is neither a new concept nor a hurdle that needs to be jumped to deliver our development assistance. It is about maximising the impact of each £1 of UK funding spent to deliver our objective to end poverty. To ensure VfM, we need to be clear about the expected results and costs of our interventions, and be confident in the strength of the evidence base.

What does VfM mean?

Good VfM is not about doing the interventions that are the cheapest. The concept is best understood through the 4Es framework elaborated on below:

·  Economy – the unit cost of inputs: Key questions - Are we buying inputs of the desired quality at the right price? Inputs include consultancy costs, management charges, travel/subsistence/accommodation costs, the cost of equipment such as IT etc. For example, water - the cost per water pump; anti-corruption – unit cost of delivering technical assistance and/or training on anti-corruption; health: unit cost of purchasing bed-nets;

·  Efficiency - the unit cost of outputs: Key questions - Are we using our inputs efficiently to deliver our outputs? Could we get more output for the same input using a different approach? For example, water - the cost of installing a water pump; anti-corruption – imputed costs saved as a result of less wastage of public spending/fewer bribes paid by poor people; low-carbon projects – the cost of CO2 abated; health: cost per bed-net purchased, distributed and hung.

·  Effectiveness – the unit cost of the outcome: Key questions - How well are the outputs achieving the desired outcome and impact, noting that we do not exercise direct control over these? Could we get more/better outcomes from a differently designed programme? For example, water - the cost per household with access to water; anti-corruption - improvements in service as a result of more funds reaching intended recipients; health – cost per DALY saved through the use of bed nets.

·  Cost-effectiveness – How much impact on poverty reduction does our intervention achieve relative to the inputs that DFID and/or our partners invest in it? Could we, at lower cost, get a better impact from another type of intervention?

Equity considerations are an additional and relatively new feature in the VfM agenda with the key question being – could the benefits from our interventions be more equitably distributed?

The diagram below shows how individual aspects of the VfM concept fit into the results chains which form part of our logical frameworks.

VfM and the Programme Cycle

VFM analysis draws on different disciplines including the use of evidence, economic analysis, monitoring and evaluation, risk management, financial management (e.g. VfM related to the opportunity cost of cash dispersed but unspent due to poor financial forecasting) and commercial capability. VfM assessments can take numerous forms, subject to data quality and evidence. For example:

·  Monetised – strong data – this will involve cost-benefit analysis, Net Present Values, discount rates;

·  Quantified - medium data – this will involve cost-effectiveness analysis;

·  Observed and then a judgement – weak data – qualitative indicators may demonstrate that high quality projects are being designed and implemented, implying cost efficiency and effectiveness despite difficulties in quantification.

Assessments can also be applied at the beginning, during implementation and at the end of a programme cycle. In the context of DFID’s cycle, entry points for VfM considerations are detailed below:

·  The Design Stage

o  VfM assessments (expected results against likely costs)

o  For individual interventions, the appraisal case in the Business Case includes a cost-benefit analysis/cost-effectiveness analysis for feasible options, whilst the commercial case focuses on cost drivers for the preferred delivery route. Indicators to monitor and assess VfM performance are devised with trigger points/thresholds to determine the points at which the intervention’s VfM should be re-assessed. Once a preferred option is selected, opportunities to embed more rigour on VfM are then available in the commercial case, which includes an assessment on partners’ procurement and management capabilities, and the management case through the formalisation of commitments.

·  The Mobilisation Stage

o  Assessing and achieving VfM through procurement and contracting – including the scrutiny of commercial proposals from implementing partners and an assessment of how the choice of implementing partners reflects VfM;

o  Inclusion of regular collection of VfM metrics and information into the monitoring strategy and evaluation plan (where relevant)

·  The Delivery Stage

o  On-going monitoring of VfM indicators – those devised in the original business case and revised where necessary - with more in-depth assessments at the Annual Review, Mid-term review and programme end phases;

o  Re-evaluation of VfM analysis if a trigger point is activated and/or the project has undergone design changes. This would involve re-running the original economic appraisal if necessary and re-assessing whether or not to stop the intervention;

o  Ad-hoc VfM checks – i.e. spot checks, VfM audits.

·  The Learn, Evolve, Adapt and Close Stage

o  Rigorous evaluation as per our Monitoring and Evaluation Strategy

o  Proactively sharing VfM knowledge and lessons learnt to improve programme performance