Value for Money: a very simple idea

There has been a great deal of noise, confusion, and at times sound and fury, over Value for Money (VfM) among overseas development NGOs based in the UK, of late. This is because so many of us depend on UK government funding from DFID, which has been taking VfM more seriously since the last election – and not surprising it has, given the degree of scepticism about overseas aid among UK taxpayers, some MPs, and journalists.

We in the NGO community are a bit scared because many of us:

1. lack confidence that others feel as strongly about our work as we do

2.don’t  understand VfM very well, and we get confused messages from different DFID staff we encounter (many of whom don’t seem to understand it very well, either – indeed a senior government economist said publicly at a meeting I attended at the end of 2011, that if he were to name a single government department not well-set up to integrate VfM it would be DFID, because of the nature of DFID’s work and the professional and ideological profile of many of its staff…)

3. fear that VfM analysis will somehow demonstrate that what we are doing is not valuable enough

4. don’t have strong enough design, monitoring and evaluation, and so aren’t clear enough about the results of our work, nor about the degree to which those results can be attributed to our contribution

5. imagine that VfM is something so complicated that we won’t be able to understand, much less use it

6. fear that somehow the VfM agenda will result in our sources of funds drying up.

I work for an NGO partly funded by DFID, and by other donors who are paying more and more interest in VfM. So I am scared too. On the other hand however, VfM surely isn’t all that complicated, at least conceptually?

Definition

What is VfM? As far as I can see, at base it’s just a simple fraction which expresses the outcomes of a project in terms of their value, as a ratio of their cost:

VfM = Value/Cost

To do this, the cost either has to be translated into the currency in which the outcome has been valued, or the outcome has to be assigned a monetary or economic value, so they can be compared. Not surprisingly, the former is usually easier than the latter. (E.g. in an education project it is easier to assign a monetary value to the outcome of 100 children educated to grade 7, than to convert the project budget into “educated children” units. The great advantage of money as a concept being its fungibility).

Of course in practice this is complex, and especially so if the project is a complex one and its outcomes are qualitative in nature; even more so if one decides to include the costs (including opportunity costs) of other project stakeholders and participants. But all that can be handled with the right skills, methodology and with that important economist’s tool: assumptions.

The purpose?

I like to think that the purpose of VfM can be boiled down to two essential scenarios. First, when comparing different possible outcomes which could be achieved with the same amount of investment, it is useful to have a tool to aid the comparison. Especially when the two outcomes are different – as different as apples and pears at least, but perhaps as different as apples and, say, lightbulbs. And more especially when taxpayers’ money is being used and so an attempt at objectivity is essential for accountability purposes. So, for example, if for a given sum of money we could achieve 100 children educated to a certain level in Uganda, or stabilise 100 km of sand dunes menacing an irrigated plantation in Mali, which should we choose? Of course we will use non-VfM criteria too, but VfM can help compare these alternative investments.

Second, when comparing two different ways to achieve the same outcome, then a value for money assessment helps decide which is the best approach. If we can help rival communities in Sierra Leone resolve a land dispute peacefully  for either £50,000 or £60,000, then – other things being equal – we should opt for the £50,000 project.

The common feature here is comparison; so the key point to bear in mind is that VfM is and can only be a relative measure. Once the comparison has been done, the monetary value assigned to the apple or the lightbulb no longer has any relevance or meaning, and is discarded, as it is merely an artefact of an economic comparison methodology. No more. No less.

The advantages

The advantages of VfM if used appropriately and skilfully are clear:

• It encourages – even requires – rigour and clarity about costs and outcomes
• Ironically it makes very explicit, for those in doubt, that development outcomes come in all kinds of currencies – economic, environmental, social, political, security, and so on. The clearer we are about these outcomes, the clearer everyone will be that development – human and societal progress – is not just about economic growth or schools or health, but about a complex mix of inter-related factors. “Value” is a powerful non-jargon word with an intrinsically powerful meaning in normal speech: it focuses attention on how valuable, how important it is for individuals, communities and society to improve the way they live.
• It helps maximise value for public money (duh!)

The difficulties

But there are real difficulties too:

• Not all NGOs have (or have easy access to) the skills and capacity to do VfM analysis
• As Andrew Natsios (ex-head of USAID) so eloquently said, the most effective development initiatives are the least easily counted and measured, while the ones most easily counted and measured are often the least effective; so VfM may be hard to apply to the most effective initiatives

The risks

The risks of adopting VfM in the overseas development sector have been well-rehearsed. Ironically, it adds to the cost of designing and implementing projects, as it is time-consuming, and thus may detract from other critical aspects of design, implementation, monitoring and evaluation, lowering quality. And there is a real risk, as outlined by Natsios, that VfM (mis)applied over time will create incentives for donors and the recipients of their money to drop the less countable (and thus more effective?) interventions in favour of the more countable (and less effective?) ones. A further risk is that because VfM is driven by donors, it will be focused mainly on their costs – or the costs they fund – and will therefore fail to capture the costs including opportunity costs incurred by others, even when these costs are not justified by the project outcomes as seen through others’ eyes.

So, what to do?

NGOs with sufficient access to alternative sources of funding can of course decide that applying VfM is not worth their while. But for most of us, we simply have to work out how to integrate VfM into our project planning, monitoring and reporting cycles – but in a way which works best for the kinds of interventions that work best. That means we have to be as clear as we can about the costs and outcomes of our projects, and become as adept as we can at applying the simplest VfM methodologies available to them, so we can confidently demonstrate to donors and potential donors that their investment of taxpayers’ funds in our projects is a good one.

Meanwhile we need to remind ourselves and anyone else that VfM is just a tool for comparison – nothing more, nothing less. No-one should be praising or criticising the value of a particular outcome or set of outcomes merely in monetary terms, unless they are doing so with reference to an alternative.

And finally, let’s not make VfM into something bigger than it deserves to be or – by its own logic – more costly than the benefits it brings.