News and Comment

‘It’s all Greek to me!’ – How do you ask for evidence of value for money?

Tuesday 6 March 2012


Most people have come to realise that we all need to know whether something represents good use of increasingly scarce resources. Many are waking up to the fact that it is no longer sufficient to demonstrate good outcomes. With shrinking budgets, we cannot commission everything that produces positive outcomes. We need something more upon which to base decisions. That ‘something more’ is evidence to justify spending money in a certain way. But we can struggle to articulate what that ‘something more’ should look like.

As an organisation that conducts economic appraisals/evaluations of public services, we come across an ever-growing number of specifications for work that incorporate some element of ‘value for money’. But while the demand is obviously there we know that this demand is often poorly articulated. Terminology is bandied around without much (or any) understanding of what they mean, perhaps an indication that phrases such as ‘value for money’ and ‘cost effectiveness’ have entered mainstream consciousness as the hot new buzzwords.We often find terms like ‘return on investment’, ‘cost benefit analysis’, ‘cost effectiveness’, and others, used interchangeably. Yet each of these represents very specific, and very different, procedures. They require different types and quality of data, and produce different forms of findings, to be used for different purposes. While I doubt anyone would ever go to a tailor and ask for an outfit to be made without specifying the material, colour, size, cut and style; it seems that we do not think this clarity of specification is necessary when asking for something upon which we may be basing significant resourcing decisions.

Now this may all sound rather pedantic, but there is a very serious point to be made here. If we are all aspiring towards better value for money, then asking for (and subsequently receiving) inappropriate types of evidence to demonstrate value for money is in itself a poor use of scarce resources. It is not value for money!

While economic terminology may come across as Greek to most of us, pretending that we really do not need to know and that this is best left to ‘someone else’ may be a recipe for a Greek tragedy. This is especially so when the commissioning landscape is increasingly being oriented towards initiatives such as payment by results and social impact bonds, among others. Are we confident that we are valuing the right things, and making the right decisions?

Those who commission services should be educated in terms of knowing how best to specify their requirements for evidence of impact and value. This helps avoid wasteful expenditure on procuring inappropriate economic appraisals that do not actually generate the types of evidence that can inform specific decisions. Bear in mind that some forms of economic appraisal/evaluation can be very expensive.

This also helps avoid uncritical adoption and promotion of emerging orthodoxies that may end up causing more problems. For example, commissioners should not simply assume that just because a service provider is from the voluntary and community sector (VCS), they must be asked to conduct a social return on investment (SROI) study. While SROI has its merits, it is but one of a number of approaches that may be applied, and may not be appropriate for all situations.

The inappropriate specification of evidence on value for money not only represents waste from the commissioning perspective, but further generates waste from the provider’s end as resources are being diverted to support and conduct such exercises.

Here at OPM, a growing area of what we do relates to raising awareness, educating and training commissioners and providers of public services to be more informed about how they can sensibly ask for, and produce, the required evidence on value for money. We firmly believe that people do not have to be technical experts, evaluators or economists to understand the key issues. For all of us who care about public services, understanding the value of public services must surely be part of service design, commissioning and delivery. But how can we be confident that we are doing a good job if we have left the job of understanding the numbers and pound signs to someone else?

To learn more about economic evaluation come to our free breakfast seminar, Practical approaches to measuring economic impact and value, on Friday 16 March at 8:15 am in London.