Value for Money and the 5Es
Sunday Short Read
Value for Money and the 5Es
A while back I wrote an article about value for money (VfM) criteria. Over the coming few weeks I'm going to build on excerpts from it here. I'll also link to the original article.
What’s this about?
VfM assessments are often fixated on the money and unclear about the value. We can sort that by re-framing policies and programs as investments in value propositions (that’s why I prefer the term "Value for Investment").
Value propositions are useful constructs because we can define them and evaluate how well they're met. Evaluating involves making value judgements. Those judgements should flow logically from 'facts' (independent observations of performance) and explicit values (what matters to people).
Those values can be expressed in rubrics, comprising criteria (aspects of value) and standards (levels of value). Interpreting evidence through the prism of a rubric is a way of doing evaluative reasoning, which is central to evaluation theory and practice.
VfM criteria (aspects of VfM) are often decided by organisations that fund and review policies and programs. For example, there's a cluster of five criteria that are commonly used to define VfM: economy, efficiency, effectiveness, cost-effectiveness, and equity - sometimes called the "5Es". These criteria are used by the UK’s Foreign, Commonwealth and Development Office (FCDO) and other organisations.
The 5Es span a program’s value chain and its components.
Economy is concerned with stewardship of the resources that are used to fuel organisational actions. Efficiency looks at the productivity of those organisational actions. Effectiveness focuses on the impacts of those actions. Cost-effectiveness considers whether the actions and impacts create enough value to justify the resources used. Equity is relevant at every level of the value chain.
The 5Es have generic definitions (here’s one example), but generic definitions won't do because each investment has a unique set of circumstances. I argue for a flexible, inclusive approach to developing criteria. VfM criteria represent agreed qualities of a policy or program. They should be co-defined with people affected by the investment and described in terms that are meaningful and specific to the context.
There’s more to VfM than just the 5Es.
The 5Es reflect aspects of good resource use that some organisations, like FCDO and NAO have deemed to be relevant and important for their organisational purposes. But there’s more to good resource use than just the 5Es. For example, the OECD DAC Evaluation Criteria cover additional aspects, any of which could be applicable to a VfM assessment.
The DAC Criteria overlap conceptually with the 5Es in obvious and non-obvious ways. They have two criteria in common (efficiency and effectiveness) though the two frameworks define them a bit differently. As I unpacked in an earlier article, the definitions of the DAC Criteria overlap conceptually with the 5Es in multiple ways.
In OPM’s VfM assessment guide (pages 35-37), we outline how the DAC criteria of Sustainability, Relevance and Coherence can potentially connect with VfM, along with two additional criteria – scalability, and acceptability.
When we look at wider criteria embedded in various organisations’ definitions of VfM, we can see that we could also consider ethics, accountability, transparency, affordability, probity, minimising wastage, proportionality, risk management, innovation, competition, adaptability, and more.
That’s OK - we can set boundaries. The point isn’t to throw the kitchen sink at every VfM assessment but rather to consider and select appropriate criteria for the circumstances.
The 5Es are good conversation starters but they're not the full list of potential VfM criteria. If you use the 5Es, they can (and should) be defined in context-specific terms. Over the next few Sundays I'm going to unpack some tips and tricks for doing just that.
Next week: Equity.
Or if you like, you can go straight to the article in the archive👇
