We’re talking about the “language of “value” in this current series of notes. I mentioned last time that the language of “value” is really important to us in Value Management: and not only to us, but to anyone who is interested in the topic of “value for money” which is really most people on earth! Philosophers have debated the subject of “value” for centuries and there is still no universal agreement on what “value” actually is from a philosophical perspective.
When we wrote the 2007 (current) edition of the Australian Standard on Value Management, the committee (which I chaired) carefully and intentionally took a very significant decision which was to separate “value” from “money”, thus enabling us to examine how much “value” we are getting for our “money”. Our primary role in VM is to pursue “best” value for money.
In doing this, we broke with tradition. As far as I know, and certainly in every presentation I have seen, internationally, on value management, the “value” always gets mixed up with the “money” (through misleading formulas like value=function/cost)and no basis whatsoever is provided to measure the extent of “value for money” provided by various options.
Whenever I have asked questions about this at international events, the usual response is that “value” and “value for money” are the same thing. In this series of notes, I will show that they are not the same thing but that our English language allows us to abbreviate (the grammatical term is an “ellipsis”) the term “value for money” to simply “value”. But we must remember that when this is done we are using an abbreviation. We see “value” but we mean “value for money”. But sometimes when we say “value”, money has absolutely nothing to do with it. In such cases, we are not using “value” as an abbreviation for “value for money”. This is why we need to separate definitions for “value” and “value for money”. I will give many examples of this as these notes proceed.
In response to note 1 in this series, one of our members, Peter Walkemeyer, wrote to tell me about the situation in which he was involved where a client had outsourced a number of major projects and also a number of operational and maintenance functions to contractors. Peter’s role was to provide assurance to the Board that they were getting good value for money in all of this.
“The complexities of value for money became rapidly apparent as major projects require certain safety outcomes, environmental outcomes, community outcomes, lifecycle outcomes, npv and irr outcomes and so forth. Delivering an asset for the lowest cost, which is what most accountants think is value for money is a long way short of the mark when one considers all the other outcomes that a Board requires in a major project.”
This is a good illustration of just how complex “value for money” can become. It’s really important to understand that outcomes such as safety, environment, community, life-cycle and the like all are part of the “value” delivered by a particular entity (whatever that entity might be). There are virtually always many options available to achieve those outcomes, all likely to cost different sums of money. The question to be asked is “which of the options will deliver best value for money?”.
Our value management approach provides a systematic way of seeking to find the best “value for money” solution. Over the next few weeks, I’ll unpack definitions of “value” and “value for money” that can help us in our quest. There’s something to think about!