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Money Well Spent

Apr 27, 2018
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  • International Development,
  • Popular catchphrases in the development sector are “bottom of the pyramid”, “doing more with less”, and “sustainable development”. An emerging catchphrase that is of growing importance and has emerged recently is “value for money”. In recent years, there is a rising concern about Value for Money (VfM) among donor agencies, such as UK’s Department for International Development (DFID), AUSAid and the World Bank. In international development, the value for money agenda has become prominent due to 3 reasons. First, aid sceptics believe that aid does not work, is inefficient and wasteful. Second, there is a need of providing assurance to taxpayers that their taxes are not being wasted and are being efficiently utilised. Third, the tools, conventionally used for measurement of impact of aid-based programmes mostly focus on the amount of money spent instead of what has been achieved and therefore fall short of providing justifications for substantial amounts of aid-money diverted towards developing economies. Hence the VfM tool emerged which helps demonstrate that aid is actually money well spent.

    VfM is a term, often used but mostly misunderstood. DFID defines VfM as “maximizing the impact of each pound spent to improve poor people’s lives” (DFID, 2011 ). This definition is in line with the UK National Audit Office’s (Office, n.d. ), which describes VfM as “the optimal use of resources to achieve the intended outcomes”. A vital component of both the definitions is to ensure optimum use of available resources to achieve the desired outcomes.
    The UK’s National Audit Office (NAO) uses the following criteria to assess the value for money of government spending:
    • Economy: minimizing the cost of resources used;
    • Efficiency: maximizing the outputs from a given level of inputs – spending well;
    • Effectiveness: ensuring that the outputs deliver the desired outcomes – spending wisely; and
    • Equity: fairly distributing the benefits to the beneficiaries. Equity has been added recently, conveying the message that development is only of value if it is also fair.

    VfM is not about buying the cheapest inputs. It is about delivering results and ensuring that the results justify the costs. Consider a programme that aims to reduce waste in an office. The programme achieves its targeted outcome of 80% waste being recycled but the cost of the programme exceeds 20% of the budget. We can conclude that the programme was effective in delivering the intended outcomes but was not efficient since the same job could have been done with less cost. In this, and other similar programmes, such as the provision of vocational training, it is relatively straightforward to measure VfM. However VfM may become difficult to measure in complex projects or organisations, such as Karandaaz Pakistan. Given that Karandaaz is a multi-dimensional donor project designed to enhance access to financial services for those on the peripheries, measuring VFM is more challenging.

    Karandaaz defines VfM as:

    ‘Optimal use of resources in improving Micro Small Medium Enterprises (MSME) access to financial services translating into higher economic benefits for the poor and marginalized groups’

    Karandaaz Pakistan, supported by UK’s Department for International Development (DFID) and the Bill and Melinda Gates Foundation (BMGF), has recognized the importance of VfM since its inception. VfM has been discussed thoroughly in the DFID funded Pakistan’s Enterprise and Asset Growth Programme (EAGR) Business Case and the organization strives to enforce it at every level.

    Now in its fourth year of implementation, with all planned components up and running, Karandaaz has exhibited good VfM in its operations. Last year’s operating costs (as a proportion of funds under management) have been contained at 5.7%. For a fully staffed and operational unit, this compares favorably with similar DFID projects . For every pound that Karandaaz invests, its partners invest multiples more meaning that Karandaaz’s investment is leveraged to increase the total volume of investment available to SMEs, which is one of the key success criteria to assess the performance of Karandaaz. At Karandaaz, we ensure that all programme and service departments (procurement, HR, M&E, and Finance) strive to optimise the use of donor funds and leverage private funds as much as possible.

    Karandaaz is also comparable to its international counterparts in terms of effectiveness. According to Steward Redqueen, a specialized consultancy that works on impact and sustainability, “CDC has a job multiplier of 247 per EUR 1 million invested, FMO has a job multiplier of 221 jobs per EUR 1 million and for Karandaaz, we observe a job multiplier of 228 jobs per EUR 1 million.” The impact results are in a very close range of the CDC/FMO multipliers. In terms of Equity, Karandaaz demonstrates inclusion of women and youth across its interventions as well as within the organization.

    In order to ensure a continued emphasis on VfM, the Monitoring, Evaluation, and Learning (MEL) department at Karandaaz has developed a comprehensive VfM Strategy comprising of indicators on all the 4E’s mentioned above. The strategy outlines key VfM metrics which are measured, tracked and reported to DFID on a quarterly basis. Going forward, Karandaaz aspires to incorporate industry benchmarks and comparators as targets in its VFM frameworks.

    [1]  Jackson, Penny. “Value for money and international development: Deconstructing myths to promote a more constructive discussion.” Organisation for Economic Cooperation and Development (2012).

    [2] DFID. DFID’s Approach to Value for Money (VfM). July 2011. https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/67479/DFID-approach-value-money.pdf

    [3] Assessing value for money, National Audit Office (https://www.nao.org.uk/successful-commissioning/general-principles/value-for-money/assessing-value-for-money/)

    [4] Assessing value for money, National Audit Office (https://www.nao.org.uk/successful-commissioning/general-principles/value-for-money/assessing-value-for-money/)

    [5] DFID Annual Review 2017

    [6] CDC is UK’s Development Finance Institution (DFI) and wholly owned by the UK Government with the objective to support the building of businesses throughout Africa and South Asia

    [7] The Netherlands Development Finance Company (FMO), or Dutch development bank is a bilateral private-sector international financial institution

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