The 5Es: Efficiency

Short Read

I'm exploring the 5Es of value for money (VfM), one by one. If you've just tuned in, check out my earlier short reads on equity, cost-effectiveness, and effectiveness. My view is that the 5Es aren’t a definitive VfM framework - no single set can be - but they’re useful conversation starters. Rather than use generic criteria, we need program-specific definitions of each E, shaped with stakeholders to reflect agreed aspects of VfM. This series shares concepts to help you define each E in your context.

Today we're taking a look at efficiency.

Efficiency is concerned with how productively an organisation (program, company, etc) carries out its intended actions, using inputs (like staff, offices and computers) to deliver outputs (like services or products).

One way to measure efficiency is with ratios...

For example, imagine a vaccination program. We know the cost of the program (financial resources). We know the number of vaccination staff (an input). We can count how many people were vaccinated (an output). So we can produce ratios like:

• Average number of people vaccinated per staff member (outputs divided by inputs)

• Average cost per person vaccinated (costs divided by outputs)

To judge whether these ratios are good, we need to compare them with benchmarks based on the efficiency ratios of other interventions in similar contexts, or with the level of performance we consider possible in theory.

As a sophisticated example, a technique called data envelopment analysis can be used to evaluate the relative efficiency of multiple units producing the same outputs (e.g., a chain of fast food restaurants) by comparing efficiency ratios and identifying the most efficient units as benchmarks.

…but ratios are just one way of looking at efficiency.

If you own a chain of burger joints, average cost per burger may be worth comparing. But if you’re running a complex adaptive program aimed at contributing to systemic changes by working iteratively and politically to meet evolving needs and priorities, what units of output are you even going to produce ratios for? For example, average cost per bespoke research product, or per piece of policy advice, won’t help us to assess efficiency. It’ll give us some numbers but as each output is unique, and lacks a benchmark, we won’t know how to interpret the results.

Efficiency ratios are relevant to VfM but if we treat efficiency as no more than ratios, we could miss the opportunity to do something more meaningful.

More broadly, we can ask:

🤔 What ways of working will ensure we get the most value from the resources invested?

An important aspect of maximising VfM through organisational actions is productivity.

Poor old productivity is sometimes misunderstood. It’s not about working harder or maintaining services in the face of budget cuts. It’s about using resources (time, money, effort, creativity, etc) to best effect, so that we can have more of what we value.

Productivity encapsulates multiple ways of looking at efficiency, such as:

🔎 Allocative efficiency, or doing the right mix of things. For example, does the program prioritise objectives and allocate resources accordingly? Does it have a balanced portfolio of actions to deliver across all of its outputs? Are there opportunities to do less of something in order to do more of something more valuable?

🔎 Technical efficiency, or delivering the right quality and quantity of outputs. Efficiency ratios are indicators of technical efficiency, but the underlying criterion is broader. For example, it includes delivering the right volume of work within budget, on time, and to the expected quality standard. It takes into account reasons for deviations from plans in order to distinguish program performance from other issues like emergent strategy, changes in political and economic conditions, etc.

🔎 Dynamic efficiency, or adapting and improving. For example, becoming more efficient by monitoring, evaluating, reflecting, learning, adopting new technologies, actively managing risks, responding to opportunities and changes in context, etc.

🔎 Relational efficiency, including communication and trust - a foundation that enables programs to operate smoothly and without which, resources may be wasted. A new program may become more efficient (and effective) over time as relationships develop. Building these relationships is an investment, requiring resources and time. The investment should be made explicit to appropriately monitor and evaluate progress toward outcomes and VfM.

Allocative, technical, and dynamic efficiency have textbook definitions in economics, which we summarised in the Guide to Assessing VfM that I co-authored with Oxford Policy Management, and adapted into the practical interpretations above that can be applied in VfM assessment.

Ways of working that make good use of resources go beyond productivity. For example, something I've learned, especially when supporting evaluations in Māori and other indigenous contexts, is that how something is done can matter as much as what it achieves.

Any aspect of organisational actions is up for consideration if it affects the extent to which the resource use creates value. For example, effective teamwork, “walking the talk” of organisational strategy and values, and, if your office is anything like mine, keeping the coffee machine topped up, are all important elements of productivity.

Next week: Economy

Here's a link to the original article that today’s short read builds on. It spans all 5Es, along with additional VfM criteria and a strategy for contextualising the 5Es by defining a program’s value proposition.

Value for money criteria

Auckland, NZ