Value for money (VFM) is not about achieving the lowest price. It is about achieving the optimum combination of whole life costs and quality. Traditionally VfM was thought of as getting the right quality, in the right quantity, at the right time, from the right supplier at the right price. This concept has been updated to - obtaining better quality of goods or services in more suitable quantities, just in time when needed, from better suppliers at prices that continue to improve.
It is also often described in terms of the ‘three Es’ – economy, efficiency and effectiveness:
- economy – minimising the cost of resources for an activity (‘doing things at a low price’)
- efficiency – performing tasks with reasonable effort (‘doing things the right way’)
- effectiveness – the extent to which objectives are met (‘doing the right things’).
To help achieve VfM, goods and services should be acquired by competition unless there are convincing reasons not to do so. The form of competition should be appropriate to the complexity of the procurement and barriers to the participation of suppliers should be removed. In practice, the level of competition is indicated by the estimated value of the proposed procurement. Each institution will have its own published thresholds above which, stated procedures must be followed. Some indicative thresholds are provided as an example.
An Efficiency Measurement Model was developed to help measure and record value for money achieved by institutions and the sector. Whilst this is no longer used in practice, the principles of the model can still be useful in measuring procurement efficiency.
There are also a number of key principles that will help in the achievement of VfM.