value for money

When I work with groups across Finance, Procurement and Project Management, we inevitably mention the concept of Value for Money (VFM).  Often when it comes to discussing value for money, people have a grasp of conceptually what it is but cannot always explain how it translates to their workplace.

So what do we mean by VFM, well here is what I got from my trusty AI assistant:

“The concept of "value for money" (VFM) refers to the optimal use of resources to achieve the best possible outcomes. It involves balancing cost, quality, and benefits to ensure that money spent delivers the maximum possible value.”

A pretty good explanation. 

The challenge when applying VFM principles is how do we ensure paying more (or less) for something whilst ensuring that there is a net benefit to the organisation.  Well it comes down to making sure we are clear on the outcomes we are trying to achieve and have identified the key requirements for our particular decision whilst also giving some thought to how much these requirements are worth to the organisation.

The recruitment process is a good example. When you are recruiting for a role, you will often start with a position description (PD) which identifies the key skills and attributes that you value for the role.  The PD will have been graded, usually within a band, which assesses the range you would pay for those skills and attributes.  You may then consider offering a higher package to a successful applicant who has more skills and experience, that are aligned to your PD, than to an applicant who has more limited skills and experience.  The key for VFM is that you need to value the extra skills and experience for that particular role.

Within procurement we need to ensure they key requirements for the sourcing activity have been identified, what quality do you require, what standards, what experience, what timeframe and anything else to ensure you achieve the required outcomes for your procurement. 

For example, if you were an organisation procuring mental health counselling services, you would need to be very clear on the objectives and the requirements for that service.  It could be a requirement to provide confidential counselling by suitably qualified individuals at a convenient location (face to face or online?).  You would also have to consider the amount of counselling you would expect which would influence the capacity of the organisation.  Once you have defined the most important requirements, value for money become the organisation that can best meet these requirements for the best relative price.

In summary, VFM is the optimal use of resources to achieve the best possible outcomes.  However, to achieve this we need to make sure the outcomes are clearly defined, and thought has been given to how much they are worth to the organisation.