Thursday, 14 September 2017

Value for Money

Value for Money

Before discussing about the Value for Money, it first be discussed regarding performance. The performance was the implementation of an activity's achievements in realizing the objectives, goals, mission, and vision of the Organization. Performance is a reflection of the level of achievement of the implementation of an activity/program/policy in realizing the objectives, goals, mission, and vision of the Organization contained in the strategic planning of an organization.

The term is often used to describe performance achievements or success rate of individuals or groups of individuals. Performance can be known only if the individual or group of individuals that have had success criteria that have been set. 


This success criteria in the form of goals to be achieved. Without any goal or target, the performance of a person or organization may not be known because there is no standard, measure it. From some of these definitions can be drawn the conclusion, performance is a condition that must be known to the parties to know the level of attainment of the results of a number of agencies or organizations connected with the vision of run by a the organization.

The measurement of performance (performance measurement) is a process of assessment of the progress of the work against goals and objectives that have been determined before, including information on: the efficiency of resource use in producing goods and services; the quality of goods and services (how well goods and services delivered to customers and the till how far customers are satisfied); the results of activities compared to the desired intention; and the effectiveness of action in achieving goals. It can be concluded that performance measurement is a method or a tool used to record and evaluate the implementation of activities based on the goals, objectives and strategies so as to be known and to improve the Organization's progress the quality of decision making and accountability.

The definition of Value for Money

Value for Money is the concept of the management of public sector organizations based on three main elements, namely the economy, efficiency, and effectiveness. In a schematic, Value for Money can be described as follows:

Value for Money is a concept of public sector performance measurement that has three main elements: economy, efficiency, and effectiveness, in utilizing the available resources, where the understanding of each of these elements is:


The economy is the acquisition of resources (inputs) at the lowest price. The economy is a comparison of the input with the input value expressed in monetary units. The economy is related to the extent to which the public sector organization can minimize input of resources by avoiding the spending wasteful and unproductive. Economic indicators is an indicator of the input. The question asked is "does the Organization have issued the cost economically?".

The efficiency

Efficiency is the relationship between inputs and outputs where goods and services are purchased by the organization used to achieve a particular output. Efficiency comparison of output/input is associated with performance standards or targets have been defined.

The effectiveness

Effectiveness is the relationship between outputs and outcomes (goals), in which the effectiveness measured based on how far the level of output, policies, and procedures your organization attain its intended purpose. If an organization successfully reaches its destination, then the organization is said to have been effective. The effectiveness of just see whether a program has achieved the goals that have been set before.

From the explanation of the third element, it can be concluded that: (1) the economic value associated with the input and input, (2) the efficiency associated with inputs and outputs, and (3) the effectiveness is related to output and outcomes.

 Value for Money indicators

The demands of the community in the Value for Money is economical (thrifty) in the procurement and allocation of resources, efficient in the sense that the use of/his sacrifice minimized and maximized, as well as effective (to succeed) in the sense of achievement goals and objectives. The role of performance indicators on the Value for Money was to provide information as consideration for decision-making. As well as Value for Money indicators divided into two, namely:

Cost allocation indicator (economical and efficiency)

Economical means of purchasing goods and services with a specific level of quality at the best price (spending less). This means that the efficiency of a particular output can be achieved with resources that are perfect humility (spending well).

Indicators of service quality (effectiveness)

Effectiveness means that the contribution of the outputs against Outcomes (achievement of objectives) and a defined target (spending wisely).

Benefits implementation of Value for Money

The application of the concept of Value for Money in performance measurement in public sector organizations would certainly benefit the Organization itself as well as the community. Benefits desired in execution Value for Money in public sector organizations IE: economical (thrifty meticulously) in the procurement and allocation of resources, efficient in the use of resources, and effective (manages to) achieve goals and objectives.
Other benefits of the implementation of the concept of Value for Money are:
  1. Increase the effectiveness of public services, within the meaning of the given service is right on target.
  2. Improving the quality of public services.
  3. Lower the cost of public services.
  4. Allocation of spending that is more oriented to the public interest.
  5. Increase the awareness of the public money (public costs awareness) implementation of public accountability as the root.

Of the various benefits mentioned above, it can be concluded that the application of the Value for Money in public sector organization performance measurement greatly help a government agency in order to provide service to the community with appropriate and appropriate targets so that the creation of a good quality of service with an economical use of resources and efficient.

 Measurement steps Value for Money

Economic Measurement

Just consider the economic measurement of input used. The economy is a relative size. Questions raised with regard to the measurement of the economy are:
  1. Does it cost your organization greater than budgeted by the Organization?
  2. Does it cost your organization outweigh the cost of other similar organizations which can be compared?
  3. Whether your organization has used financial resources optimally?

The economics is the comparison between the input with an input value. Input in this case is the target of the budget, while the input value is the realization of the budget. Exemplifying the cost of construction of the hospital can be said to be economical if the cost used in development lower than the real. So it can be concluded that a performance is said to be economical in the realization of the budget is smaller than the target budget and can achieve output corresponds to that set. From the description, mathematically economic measurements can be done with calculation as follows:

Measurement Efficiency

Efficiency can be measured by the ratio between the output with the input. The greater the ratio, the more efficient an organization. Formulate efficiency as follows:


Output : the output of an activity/program
Input : all the resources used to carry out an activities or programs

The measurement of efficiency is not absolute but relative in nature. Since efficiency is measured by comparing the output and input, then the efficiency of the repair can be done with:
  • Boost output on the same input level.
  • Increase output in proportion to the increase in the proportion is larger than the input.
  • Lower the input on the same output level.
  • The lower the input in a larger proportion than the decline in the proportion of outputs.
  • Measurement Of Effectiveness

Effectiveness is a measure of whether or not an organization successfully reaches its destination. Effectiveness not stated about how big the costs incurred to achieve those goals. A public sector organization can be said to be effective if the organization can achieve the objectives that have been set.

So mathematically, its effectiveness can be calculated with the following formula:

The higher the value of the ratio of effectiveness, then an activity/program said to be more effective.

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