Value for Money - Not-for-Profit Organisations

'The measurement of performance in a not-for-profit organisation may have value for money as its focus.’

Expand on this statement, incorporating comments on economy, efficiency and effectiveness into your answer.
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Since profit is not available as a performance measure in a non-profit-making organisation, other performance measures need to be considered. The value for money principle should ensure that the service is provided for minimum cost, or that the maximum benefit is achieved by the users of the service for the sum of money provided to fund the service organisation.

The principles of economy, efficiency and effectiveness would all seem to be desirable under such circumstances, but can sometimes provide conflicting decisions as follows:

• economy – using the least cost option to provide a requirement
• efficiency – maximising the ratio of output to input
• effectiveness – the extent to which objectives are achieved.


By purchasing a cheap component for a system, we may achieve economy and, by producing an output at an increased level due to the reduced cost involved, we have achieved efficiency, but if the quality is poor then the effectiveness objective is not achieved.

As an example, consider a charity that aims to provide an opthalmic service to a third world country and issue glasses where necessary to the population. By issuing cheap glasses (economy), more of the population can be assisted (efficiency), but if there is a high incidence of breakage and the glasses prove to be of little or no use then effectiveness is not achieved.

Therefore, all three ‘tests’ should be considered when assessing value for money.


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