The 3 ‘E’s of Value for Money in the Pursuit of Optimal Resul

It is considered necessary that we examine the three basic elements of Value for Money – Economy, Efficiency and Effectiveness (the three ‘Es’) and as they are applied to enhance the  pursuit of  Value for Money.

Economy, the first of this element ensures that input costs are minimised and that the practice of the virtues of thrift and good housekeeping in spending is enthroned.  

• elements of Value for Money, which are:

ECONOMY, EFFICIENCY and EFFECTIVENESS.

Economy aims to reduce cost of resources used to generate an output while maintaining a high standard of quality. Consequently, resources are applied with three key parameters in mind. These are:  quality, quantity and price. Economy is defeated when:

• When we acquire and use overpriced inputs arising from poor procurement process tainted with corruption;
• Multinational companies use inputs with inflated Transfer Prices; 
• We acquire poor-quality materials;
• When we overstaff the production line or admin department;
• When we keep products and assets idle when they are in high demand

    Efficiency, on the other hand, aims to achieve maximum useful output at minimum level of input cost through continuous pursuit of improved productivity. This is done, extracting maximum useful output from fixed or determined resources or inputs applied to get more results/output.

Efficiency generally is devoting minimum resources to achieve a given level of output. It’s instructive here to take note of the parameters… maximum useful output from fixed resources or inputs, minimum resources devoted to achieving a given level of output. An operation is only said to have increased in efficiency if either a lower cost is used to produce a given amount of output, or a given level of cost results in increased output. Results of work with no useful purpose or accumulation of surplus materials that are not needed to support operations indicate inefficiency. It’s same for purchase of more cars than required, excessive supply of spare parts on turnkey contracts for plants and spare parts and use of excessive materials beyond standard, for example, use of more cement than necessary for a building construction.

Adopting efficiency requires such key elements as awareness of the desired objective, planning operations as efficiently as possible for a given level of resources, provision of economical and efficient inputs- a procurement activity with so much corruption and following prescribed work systems and procedures to avoid duplication of effort, unnecessary tasks and idle time.

 Effectiveness demands that output of any given activity achieves the desired result and in keeping with the ethos of Value for Money Rationale, resources are applied with three key parameters in mind – quality, quantity and price. Effectiveness for instance, disallows acquisition and use of overpriced goods experienced in cases of mismatch of orders and invoice value, transfer of inflated prices by overseas companies, acquisition of poor-quality materials, overstaffing and the ugly attitude of keeping products and assets idle when in high demand.  Effectiveness ensures that an activity achieves the desired result and that you obtain what you want at the least cost based primarily on knowing what is needed, measuring whether it has been achieved and whether the cost is right.

The three elements of value for money are inter-related and resonate for better result. Economy and efficiency are of little value if effectiveness, which is the objective, fails or is not achieved. Economy and efficiency are similar because they both thrive on saving resources. 

Economy ensures that input costs are minimized while Efficiency stresses that maximum output is achieved at the minimum level of input cost. It’s a common saying that, economy and efficiency ate two sides of the same coin, meaning that results are achieved at minimum cost. For students of Algebra, therefore, being Efficient includes being economical.  A transaction cannot be efficient and excessively expensive, but can be both economic (cheap) and inefficient. 

Effectiveness guarantees success in meeting real need. 

As you will recall, we had argued here in our first article, the Value for Money Rationale, that Doing More with Less is spending less, spending well and spending wisely to achieve maximum benefit.

As you can see, it ties neatly into the elements of Value for Money- Economy, minimising input cost – spending less; Efficiency, continuous productivity– spending well; and Effectiveness, achieving result or objective– spending wisely.

From the foregoing, economy and efficiency are “Doing Things Right” and Effectiveness is “Doing the Right Things” 

In a Value for Money slogan as an important mantra for you, “Do More with Less by Doing Things Right and Doing the Right Things.”