The Three E's of Value for Money

Value for Money rests on three components: economy, efficiency, and effectiveness. Each one means something specific and each one is needed. A school that has only one or two of the three is not yet practising VfM.

Economy

Economy is the practice of minimising the cost of resources used for an activity, with regard to appropriate quality. It is careful spending, discretion, and good housekeeping.

Economy is about cost minimisation. Buying the resources you need at the lowest viable price, consistent with the quality you actually need.

Economy applies to all types of resources: physical, human, time, and information. A meeting that takes two hours when it could have taken thirty minutes is uneconomical. Staff time spent on low-value paperwork is uneconomical.

Economy is observed when proper attention is given to the right amount, the right kind, the right place, the right time, and the right cost. Five rights for economy:

1. Right amount. Not too much; not too little.
2. Right kind. The actual specification needed.
3. Right place. Where it will be used.
4. Right time. When it is needed, not earlier or later.
5. Right cost. Lowest viable price for the required quality.

A worked example for economy

A school needs new textbooks for grade 5. Economic procurement:

1. Right amount. Count actual enrolment, buy that number plus a small reserve, not double.
2. Right kind. The specific textbooks aligned with the curriculum, not whatever is in stock.
3. Right place. Delivered to the school, not picked up at the supplier’s distant warehouse.
4. Right time. Before term starts, not in the middle of term when teachers are improvising.
5. Right cost. Compare quotes from multiple suppliers; consider bulk discounts.

A principal who handles textbook procurement economically saves real money. A principal who buys impulsively, in the wrong amount, at the wrong time, wastes resources.

The danger of false economy

A value mindset aligns the interests of the manager spending money with those of the owners of the money. She spends money in the interests of its owners.

Economy is not about being cheap. A teacher’s chair that costs 30 percent less but breaks in three months is false economy. A school that buys the cheapest available textbook regardless of educational quality has been cheap, not economical.

The skill is balancing cost against quality. Cheap enough to be economical; high enough quality to actually do the job.

Efficiency

Efficiency refers to the relationship of inputs and outputs in the use of resources. Examples include the teacher-pupil ratio in a school and the machine-hours to output ratio in a factory.

Efficiency is the ratio of output to input. A teacher who teaches 30 students well is more efficient than one who teaches 10 students equally well, holding pay and time constant. A meeting that produces a decision in 30 minutes is more efficient than one that produces the same decision in two hours.

An increase in output without a corresponding increase in input, or the same output with a reduced input, indicates an increase in efficiency. Two ways to increase efficiency:

1. More output for the same input. Same staff, same budget, more learning.
2. Same output for less input. Same learning, less staff time or less budget.

A school improving its efficiency does one or both of these.

Key elements of efficiency

Four elements support efficiency:

1. Awareness of the desired goals.
2. Planning the operation as efficiently as possible for the given level of resources.
3. A structured organisation.
4. The provision of work instructions.

In a school, efficiency requires:

1. Knowing what you are trying to produce. Without clear goals, efficiency is meaningless.
2. Planning the work. Inefficiency often comes from poor planning, not from lack of effort.
3. Organising the structure. Roles, responsibilities, processes. Without these, effort is duplicated or missed.
4. Clear instructions. Staff who do not know exactly what is expected produce inconsistent work.

A worked example for efficiency

A school’s grade-3 reading programme. Efficient implementation:

1. Clear goals: 90 percent of grade 3 reading at level by year end.
2. Planned operation: structured 40-minute reading block daily; six-weekly assessment; targeted intervention.
3. Structured organisation: each teacher knows her role; the coordinator tracks progress.
4. Clear instructions: lesson plans available; assessment rubrics shared; intervention protocols defined.

A principal who runs the programme efficiently extracts maximum learning from the staff time, the materials, and the assessment investment. A principal who runs it inefficiently uses the same resources to produce less learning.

Effectiveness

The third E is often the most important and the most often missed.

Effectiveness means that the service as provided meets a real need properly. It is an ends-oriented concept that measures the degree to which predetermined goals and objectives for an activity or programme are achieved.

Effectiveness is about whether the work produces the intended outcome. A reading programme that runs efficiently but fails to actually improve reading is not effective. A budget that is spent economically and efficiently on the wrong things is not effective. There are three views of effectiveness.

Programme effectiveness

This relates to the continuing relevance of a programme, the attainment of its intended objectives, its impact, and its cost-effectiveness. Is this programme doing what it was supposed to do? Does it still meet a real need? What impact is it actually producing?

Operational effectiveness

This relates to the achievement of output targets, the delivery system of goods and services produced, and the cost-effectiveness of these systems. Are the day-to-day operations producing what they should? Is the delivery working?

Organisational effectiveness

This relates to the overall capability of the organisation and the interactions among strategic planning, management structures, processes, and human and financial resources. Is the whole organisation working? Are strategy, structure, processes, and resources aligned?

A school can be effective at one level and ineffective at another. A school may have an effective reading programme (programme level), poor operational delivery in other areas (operational level), and incoherent overall strategy (organisational level).

A school head should ask all three questions, not just one.

How the three E’s relate

The three E’s are not interchangeable. Each measures something different.

A school can score well on any one and badly on others. The combinations matter.

Economic but ineffective

The school bought the cheapest textbooks. They are inappropriate for the curriculum. The students learn less. Economic, not effective.

Efficient but ineffective

The school runs a programme efficiently with great teacher-to-student ratios. The programme is the wrong programme for these students. Efficient, not effective.

Effective but not economic or efficient

The school produces strong learning outcomes by spending three times what comparable schools spend. Effective, not economic.

All three: VfM

The school produces strong learning outcomes (effective) using its resources well (efficient) at reasonable cost (economic). This is Value for Money.

A school head should not optimise on one E at the expense of the others. The skill is balancing all three.

Flashcard

What are the three E's of Value for Money, and what is the most important?

Tap to reveal

Answer

Economy, Efficiency, Effectiveness. Effectiveness is most important.

1. Economy. Minimise the cost of inputs while maintaining appropriate quality. Right amount, kind, place, time, cost.

2. Efficiency. Maximise output from given inputs. Plan well, organise structure, give clear instructions.

3. Effectiveness. Achieve the intended outcomes. Programme, operational, and organisational effectiveness.

Effectiveness matters most because without it the others are meaningless. A school can be economical and efficient at producing the wrong outcomes; that is not VfM. The opposite (effective but uneconomical) is also a problem because it is not sustainable.

True VfM requires all three together: doing the right things (effective), doing them well (efficient), at reasonable cost (economic).