31.12.10

Bye VFM, Hello BYP

Having seen a range of improvement and scrutiny initiatives applied in the public sector money decisions, it still amazing that some discussions of Value for Money seem to avoid the time dimension. Given that we monitor the passing of time so closely on a daily basis (time pieces worn as body adornment in the way of watches) and marked with pomp and circumstance at new year, it often seems less tangibly applied in value for money debates.

After all, the value achieved from any cost expenditure needs to be assessed over the relevant time period. Sure, some of the good business cases go as far as “net present value” calculations, which deal with the costs standardised over explicit time periods. But equally there are VFM discussions which seem to overlook the time dimension. So I propose an alternative, the Value for Money for Time test. So no longer VFM but now VTM.

get the graphic

This starts to touch on issues of “lifetime” or “lifecycle” cost of a “purchase” decision. Perhaps we’re getting closer to thinking this way, with cars for example that come with 5 or even 7 year warranties and being able to see the appeal of that, if more intuitively than rationally, so it is possible.

I expect this is also something to do with being able to more easily measure and understand the “money” dimension in the calculation, but less easy to see and indeed quantify the broader value dimensions, which might be more qualitative or even intangible. Which probably still means a tendency towards decisions that minimise cost rather than maximise value. Add into the mix that thinking about the time element is forward looking and hence can need to be a bit predictive, and things can struggle a little. So quite easy to focus on the tangible money aspect.

So all in all, a strong emphasis on money, before value and time. With business cases selling benefits, one would think that it’s value (V) over time (T) which are the prime considerations which are then tested against cost (M)….VTM.

Ironically the net present value calculation is actually about the value of the money over time, rather than value. Perhaps we need to strive for a more technical calculation in any business case…

Value per time per cost or more practically……Benefit per Year per Pound.