Value for money (VfM) is often an important donor consideration for development programming. At a basic level, it provides a framework for ascertaining whether one programme is having more impact than another, and so offering better value for the donor funding being provided.
Designing a system to assess VfM in your programme can also support management decision-making, providing information on which interventions are delivering value for money in terms of their economy, efficiency and effectiveness.
Selecting VfM metrics
A first step in designing a VfM system is to select a range of relevant VFM metrics for the programme to report against. The choice of VFM measures depends to a large extent on the aims and objectives of the programme and the result (i.e. the value) against which costs are being calculated. As such, VfM metrics are typically linked to indicators in the intervention results chain. A meaningful VfM framework ensures that VfM is not just a process for cutting costs or saving money irrespective of the effect on programme performance.
The quality and sophistication of a programme’s VfM framework typically develops over time. For instance, during the inception period, programmes usually have a greater focus on establishing their systems and processes. As such, early VfM measures mainly feature internal programme process indicators, such as establishing a monitoring framework to aggregate programme results and to process and attribute programme costs. During the first year of implementation, the attention should shift to assessing the economy and efficiency with which outputs are generated, while in years two and three the framework should focus more on the programme’s effectiveness and cost-efficiencyectiveness.
Maximising project impact through cost benefit analysis offers key insights and processes that have worked well to improve MSD project design, especially for setting the right targets with a value for money focus.
Calculating programme costs
VfM indicators are only meaningful if programme costs are properly calculated. This can be a relatively difficult task in programmes using a market systems approach where a large proportion of programme costs are made up of facilitation costs (usually relating to staff time) rather than the purchase of tangible inputs. Appropriately attributing staff time to individual interventions is a key step in generating an accurate cost picture.
Components of programme financial cost
Programme financial costs are often divided into three components: direct costs (e.g. value of contracts/grants, costs of equipment purchases); facilitation costs (e.g. costs of long-term technical assistance working on particular interventions, costs of short-term technical assistance hired for specific interventions (STAA), costs of travelling to field sites and conducting work in the field, M&E costs); and overhead costs (e.g. office costs, operational staff).
Attributing costs
Programme managers (and indeed donors) typically want to understand which interventions or sectors within a programme portfolio represent better (or worse) value for money. This requires attributing costs arising from facilitation and overheads to particular interventions (or at least to sectors).
Direct costs are usually the simplest to attribute to specific interventions as they generally consist of the grants or contracts agreed for those interventions and the cost of any related equipment.
Programmes using a market systems approach typically incur significant facilitation costs (own or outsourced) relating to components of time for intervention and sector managers, costs associated with monitoring interventions and fieldwork costs.
Facilitation and overhead costs are not always directly attributable to particular interventions but may span multiple interventions within a sector, or the programme as a whole. A number of techniques can be used to attribute the costs to particular interventions or sectors:
- Staff time: for facilitation costs, the main expenditure item is likely to be certain elements of staff time – chiefly the time of the sector-specific technical staff working on multiple interventions. This can be attributed to interventions in different ways, either using timesheets or by asking staff to provide estimates of time spent on each intervention
- Travel expenses: these are often a large component of facilitation costs for programmes using a market systems approach. Travel request forms provide a useful way to attribute travel expenses to particular interventions. Non-facilitation related travel should be treated as an overhead cost
- Overhead costs: those which cannot be attributed to particular interventions are typically spread across sectors and interventions. They are frequently attributed in a manner proportional to the direct cost associated with each intervention.
Improving the practice of value for money assessment outlines the challenge of using VfM concepts to improve development outcomes and proposes a VfM diagnostic tool to help meet this challenge, drawing on practice examples.
Building VfM into programme management and reporting
VfM data is only useful if it is analysed and reported in a timely and appropriate fashion and feeds into the overall programme management. It should not be seen as a separate activity, but an integral part of programme monitoring. VfM analysis is a team task – monitoring and finance teams have to work closely with intervention managers to capture programme cost data and to attribute this to individual interventions where possible.
The SHARPE value for money assessment presents both qualitative and quantitative evidence against SHARPE’s agreed VfM indicators.