The truth about value for money
Every contract achieves some value for money. So I can’t accuse anyone of lying if they say their contract is value for money.
However, almost every time they utter value for money the person doing the uttering means something completely different from this literal meaning. Their main intention is to convey, albeit implicitly through context, tone and general use, that their contract is the best possible or a good deal. They also do this by prefixing value for money with best or good, always a bad move.
Before I continue here are some important facts.
- All contracts achieve some value
- Value is how well you satisfy beneficiaries needs
- Value for money is a sound bite, that’s all, no more
- Best is abstract nonsense, read ‘The best value fallacy’
- Good is also abstract nonsense, just not as grandiose
Why use value for money?
Those being told something is value for money generally understand that the speaker means this is the best or a good deal. It’s a short cut, albeit a careless and casual one. What do I mean? The easiest way for me to explain this is to suggest you to ask the speaker what they mean by value for money, specifically.
If you receive an explanation that includes the words value, good or best I’m betting, in this context, it’s gibberish nonsense. And I’m sure it’ll be a rare moment when the explanation you receive doesn’t include these words and it is specific and definite. This leads me nicely onto an explanation of what value for money actually is.
What is value?
In the context of commercial contracts value is ….
The subjective judgment beneficiaries make about how well the impact of the benefits they expect, perceive and actually experience satisfy their needs.
The impact of the benefits includes the way you buy, supply and use goods and services because all will have varying degrees of influence on expectations, perceptions and actual experience. You might also include disposal of assets or the way you finish a contract.
Each beneficiary, of which there are often many, is likely to value the impact (of the benefit) they expect, perceive and actually experience differently. That’s because each will actually have different needs or perhaps they will just think their needs are different, when they aren’t, or they could just have a different view about their experience.
This means beneficiaries judgments will differ because of various influences from their differing backgrounds, circumstances and situations. To have a more complete understanding we should take into account:
- Expectations and perceptions
- Time travel
A beneficiary’s needs aren’t necessarily what a beneficiary thinks they should be. That’s because needs could be a legal necessity or they arise because those with the authority to do so decide there is a discretionary need to satisfy.
It’s the impact beneficiaries experience that should satisfy their needs. I use outcomes to describe beneficiaries’ needs, often supplementing these outcomes with conditions. Conditions enable me to be more specific and more definite.
For example, councils are legally obliged to remove residents’ household rubbish. However, views are likely to differ as to how often the council should empty each bin. This is likely to depend on:
- The amount of money the council want to allocate to emptying bins
- Industry standards
- Acknowledged good practice
- What other councils are doing
Therefore, a fairly common outcome and supplementary condition is …
Each resident’s household waste bin is empty (outcome), once every fortnight (condition)
Each contract has multiple beneficiaries. Some have more influence and others have higher profile needs. Each beneficiary is likely to view the impact they experience differently, although some will have sufficiently similar views such that we can group them together. Beneficiaries can belong to more than one group. These are some of the generic groups that I use.
- Direct beneficiary
- Funder (budget holder)
For complex purchases and needs use specific and descriptive names for different beneficiaries, split beneficiaries out into more groups and sometimes sub-groups.
Expectations and perceptions
Expectations and perceptions, rather than actual experience, tend to have a stronger influence on what each beneficiary thinks they have experienced. As a purchaser you’re keen for beneficiaries to:
- Actually experience what they expected to experience
- Actually experience what they perceive they experience
- Perceive they experience what they expected to experience
It’s not easy to do this because beneficiaries interpret their experience and judge its value differently, from each other, because of:
- Previous experiences
- Subject knowledge
- Relevant expertise
- Comparisons with reference or anchor points
- Interests and priorities
Beneficiaries don’t judge value in isolation; they make comparisons. How would you ascribe a value to something if you had nothing to compare it to? There isn’t a universal value scale, so it’s a case of comparing what you experience relative to a reference point or points. A reference point could be internal or external or both. Internal reference points could include:
- What you expect to experience
- What you perceive you experience
External reference points could include:
- Recent media comment
- Results reported by other similar organisations
Money is a reference point, specifically the amount you will or you (or someone else) have paid to achieve outcomes. How would you represent paying less for the same outcomes?
- More value for money?
- Better value for money?
- Same value for less money?
It is more likely than not that you’ll use one of the first two, despite the fact that you’re not receiving any more or any better value. All you are doing is paying less for the same value.
To reiterate, value is subjective, it’s the result of a comparative judgment. I am not a fan of trying to convert subjective value into amounts of money, monestising benefits, unlike H M Treasury. Conversions are fraught with dodgy assumptions, arbitrary amounts and overly complex calculations. The degree of complexity is often, I’ve thought, proportional to the need to confer an air of scientific authority, confidence and accuracy on the result of the calculation. And to bamboozle and exhaust those reading about it such that they can’t be bothered to delve any further than misleading headlines.
The value beneficiaries ascribe to the impact of the benefits they experience will change over time because of changes to:
- Reference points
Beneficiaries judge value at a specific point in time. However, this could change in an hour, a day, a week a month or a year. Trends are the best way to track value over time. If you plot changes that could influence value, such as changes to services and reference points, on the same time line as the trend in value you’ll have more chance to identify specific causes to changes in value.
What about the prefix ‘good’?
Good and best are as bad as each other when used to prefix value for money. They are both abstract notions that you’ll never pin down in a month of Sundays, unless they’re so heavily qualified or caveated such that they descend back into meaningless drivel.
Can you have too much value?
You can have too much value, although it’s not always as cut and dried as this. In most instances you can formulate desired outcomes (the impact of benefits) sufficiently accurately such that if you exceed them you’re buying too much value. If this happens it’ll mean you could have paid less to receive less but still sufficient to satisfy beneficiaries’ needs.
However, when you cannot formulate desired outcomes accurately you can’t be as precise in judging what is likely to be too much or too little value. A particularly prevalent example is the purchase of some professional services, when you might fix the money (price) but not the value. There are some circumstances, for example consultancy and training, when providing beneficiaries with more value than you or they thought they needed could provide a significantly better outcome than expected.
What I use instead of value for money
We should rid ourselves of value for money and the misconceptions it promulgates. I use this.
The goods and services whose purchase, use and disposal satisfies beneficiaries need, bought at the lowest price
This can be a bit much for some so I often shorten it to this more sound bite friendly expression.
Minimum effective value (or quality), at the lowest price