Efficiency,Effectiveness,Economy and value for money

As part of their business processes, organisations should aim to:

  • Identify opportunities to achieve efficiencies
  • Identify what good looks like
  • Evidence and inform cost and quality trade-offs
  • Measure impact and track pace of change

‘Best value requires an authority to secure continuous improvement in the way in which its functions are exercised, having regard to a combination of economy (costs), efficiency (throughputs) and effectiveness (outcomes).’

As a group, ask yourselves:

  • Do you agree that you have a role to play in measuring Best Value?
  • How would you measure the three Es (Economy, Efficiency and Effectiveness) in terms of your activities?
  • When you decide what to purchase, do you consider (any or all of) the three Es?
  • Is it important to ensure that procurement of resources and services will lead to improved pupil outcomes?

Data analysis can and should play a vital role in supporting the delivery of value for money and help realise efficiencies across every level of a business. Using evidence-based analysis to support decision-making, organisations can not only provide context and rationale for the choices they make in their organisations, but also identify, prioritise and measure initiatives for maximise impact.

Value for money is a framework of analysis that leads to the improvement and refining of management and evaluation tools already used in the area of development activities. It is applied and
used in several activity areas including activity evaluation. Several methods are used to obtain value for money, especially
methods of cost-effectiveness analysis, cost-utility analysis, cost-benefit analysis, cost-impact correlation, social return on investment, and baseline analysis of resource efficiency. Various bodies use these methods depending on their needs.

According to the Organisation for Economic Co-operation and Development (OECD), it is the optimal combination of overall
cost and the quality of life to meet the customer’s need . Value for
money can be evaluated using economics, efficiency, and effectiveness, commonly referred to as the “3 Es.” Sometimes a
fourth “E” – equity is added. It should be underscored that at the onset, value for money was a concept restricted to finance, but it progressively spread to development activities in a broader sense.

Economy, efficiency and effectiveness, often referred to as the “Three Es”, may be used as complementary factors contributing to an assessment of the value for money provided by a purchase, project or activity.

  • Economy: minimising the cost of resources used or required (inputs) – spending less;
  • Efficiency: the relationship between the output from goods or services and the resources to produce them – spending well; and
  • Effectiveness: the relationship between the intended and actual results of public spending (outcomes) – spending wisely.

Sometimes a fourth ‘E’, equity, is also added.