It is said that beauty lies in the eyes of the beholder. The same could be said of value. What is value to me may be meaningless to you, depending on where you sit and what your expectations are. Measuring value is therefore a big dilemma. The seller believes (or would like us to believe) that his product is of highest value, and will package it as such, complete with exaggerations. The buyer, will on the other hand try to discount that value so that he can pay a much lower price than what the seller demands. This then becomes the basis for price negotiation in a normal market. Economists even define a perfect market as one where information is available to both buyers and sellers, and where cost of exiting the market is, for example, not prohibitive.

In the public sector, measuring value is one of the most contested areas between the Government and its citizens. The Government will try to present the projects delivered as of direct and great value to its citizens; most of the times overstretching the value delivered. Where citizens are more enlightened and informed, this is countered as mere public relations. This could be because there are no standards of how that value can be measured. And even if there were standards, does a social contract exist? And if it exists, is it mutually understood by both parties?

Not Value for Money!

This was the screaming header of a complaint from a traveler, about value not delivered by a hotel.

“We paid US$315 to stay here but that was way overpriced. We have stayed for less with higher quality in both Anaheim and Yosemite... The bathroom smelled like smoke. The room was large but of very simple standard. THIN walls. There was a loud party upstairs and it took about 30 minutes after complaining before it was quieted down. No reading lamps for the bed. No pool towels. I’d say this is a US$200 place - at best...”

Clearly, this is a disappointed family. Having paid US$315, they expected better. Did you notice how lack of a reading lamp, pool towels and thin walls became a measure of value? This customer could smell the bathrooms, which smelled like smoke? Obviously, value was lacking here, especially compared to the money paid.

Will Kenya get Value for Money from its new railway?

In a BBC Africa article dated 8 June 2017, crucial questions are asked of whether the Standard Gauge Railway (SGR) is Value for Money for Kenya. Have Kenyans paid too much for less value?

This article compares the unit cost (cost per kilometre), with costs incurred by other countries and concludes that it is the highest in the world. The question of whether Kenya got Value for Money for the investment in SGR elicits different answers depending on who you ask.

For the Government bureaucrat, Kenya got the best piece of infrastructure, which our grandchildren will enjoy for ages to come. It is the silver bullet to Kenya’s problems. A political activist will not settle down until he has proved how value was lost rather than gained. He will argue how US$5 billion would have been more helpful in building hospitals and improving roads instead of a piece of steel that only helps a select few. A simple commuter who has been enduring the long, torturous and dangerous Nairobi - Mombasa bus trips will tell you how this SGR has transformed his life. So, there you are, varied opinions on value.

So, what is Value for Money?

Value for Money has been defined as a utility derived from every purchase or every sum of money spent. Value for Money is based not only on the minimum purchase price (economy) but also on the maximum efficiency and effectiveness of the purchase. The concept of Value for Money (VfM) in everyday life is easily understood: not paying more for a good or service than its quality or availability justify. In relation to public spending, it implies a concern with economy (cost minimisation), efficiency (output maximisation) and effectiveness (full attainment of the intended results). It must also support the value of equity.

The term Value for Money is often used interchangeably with synonyms such as:

  • Optimal (Optimisation)
  • Return on Investment (ROI)
  • Things sold at a good price
  • Where quality meets the price
  • Quality to Price ratio
  • Win - win

In some few cases, Value for Money in the simplest form is seen as the least price to obtain a good or service, but this is limited to where there is no differentiation of the goods/services available in the market.

The 4 Es in Value for Money

In an attempt to provide a standard for defining and measuring Value for Money, 3 E’s – economy, efficiency and effectiveness, were initially introduced and later a fourth E (equity). It is not the intention of this article to define the 4 E’s, but to explore how the 4 E’s can be deployed in the public sector.

Value for Money tools.

Various tools exist for ensuring Value for Money, such as:

  • Stakeholder involvement at concept level: In the Constitution of Kenya 2010, public participation is expected for any government intervention. It is expected that through such public participation, value for citizens will be conceived, articulated, and a social contract “signed”.
  • Comprehensive budget (zero based vs incremental): Public sector entities are expected to make comprehensive budgets and make them public to inform the social contract with the citizenry.
  • Link indicators to the budget/costs: Usually, Value for Money can be measured by comparing at the granular level, the cost of delivering an output. It is therefore imperative for the public sector to link the programmatic indicators with the budget, so as to measure the effectiveness and efficiency of service delivery.
  • Budget variance analysis: Once a budget has been approved by the citizens either directly or through their elected leaders, the public sector practitioner must have a way of ensuring that he does not exceed those budget limits.
  • User surveys/feedback: This is a powerful tool that helps the implementer to hear from the beneficiary if indeed the social contract was fulfilled.
  • The formulation of the questions, the timing of the survey, the survey tools, all contribute to the quality of feedback received.
  • Value for Money audits: This is an evaluation from an independent practitioner who is able to give professional assurance as to whether value has been delivered or not. Different synonyms are used for Value for Money audit, such as – performance audits, technical audits, procurement audits, system audits and process audits. It is important to clearly define the scope of such audits so as to get the right outcome.

Good intentions, ethical behaviour and adept planning does not always guarantee Value for Money. Value for Money leaks, and therefore it is important to identify the typical leak points, which include:

  • Poorly designed programs/projects
  • Poor budgeting
  • Poor implementation
  • Poor monitoring and evaluation processes
  • Weaknesses in procurement controls
  • Theft and corruption
  • Assets misappropriation

A public practitioner who is keen to deliver value will work towards sealing these leaks, which can jeopardise Value for Money and thereby affect the social contract. Remember, ‘Usipoziba ufa, utajenga ukuta’, which means in Swahili that, prevention is better than cure.

VfM challenges in the public sector

  • Defining and measuring Value for Money is fraught with various challenges in the public sector such as:
  • The public good problem: It is not always easy to value a public good, because money (cost) is not the only measure.
  • Cost accounting: If cost was the main measure, another challenge emerges of cost accounting. How do you do cost accounting in the public sector?
  • Multiple stakeholders with different and unclear expectations complicate the measurement of Value for Money.

Communicating Value for Money

However difficult or seemingly impossible it is to articulate, plan, deliver and measure Value for Money in the public sector, a clear communication strategy is important. It is said that many times, value is deemed not delivered because it is not declared. So what are the minimums when it comes to communicating Value for Money?

  1. Determine the user of the communication: Complex or a simple user? Informed or uninformed? Engaged or disengaged? Cynical or believing?
  2. Ensure common understanding of Value for Money: Define value at the onset, so as to avoid expectation gaps.
  3. Timely communication: What value is it if the communication is not on time?
  4. Corroborated by independent sources: An independent mono-eye is always more trusted than a subjective pair of eyes. Get someone else to validate.
  5. Use the occasion to pick lessons learnt.

It has been said, and rightly so, that whatever gets measured gets done. Conversely, whatever does not get measured, does not get done. If you don’t know what value is, you may not realise when (if) you achieve it.

To ensure Value for Money, you should minimise expectation gaps with your stakeholders through active public and stakeholder participation so as to manage their different expectations. Always remember that value lies in the eye of the beholder.

Mwangi Karanja

Associate Director,

PwC Kenya

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