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Value for Money principles

Value for Money principles

Achieving value for money is a critical consideration for the achievement of DFAT's strategic objectives. It is a requirement under the Public Governance, Performance and Accountability Act (2013) and the Commonwealth Procurement Rules. Building on these requirements DFAT has developed eight Value for Money Principles to guide decision making and maximise the impact of its investments. We expect all our delivery partners to give effect to the principles and value for money performance is measured in our Aid Performance Framework.

Economy Efficiency Effectiveness Ethics
1. Cost consciousness

2. Encouraging competition
3. Evidence based decision making

4. Proportionality
5. Performance and Risk Management

6. Results Focus

7. Experimentation and innovation
8. Accountability and transparency

Principle 1: Cost Consciousness

Cost-consciousness is central to value for money and requires DFAT to seek reasonable opportunities to reduce costs at every level of operations. Decision makers should scrutinise programming costs throughout the investment lifecycle to ensure the most cost-effective options are pursued. However, economy should not be pursued without consideration of the impact on effectiveness or efficiency. Cost is one critical aspect of the value for money equation, but value for money does not always mean choosing the lowest cost option. It requires consideration of the priority of the task, alternative ways of achieving it and the costs and benefits of different approaches.

Principle 2: Encouraging Competition

Competition is central to value for money and requires DFAT to consider and compare competing methods and partners and to select the option that offers the optimal mix of costs and benefits. This means that decision makers must encourage a culture of contestability and the competition of ideas and alternative solutions when making investment decisions. It also requires decision makers to encourage and use competitive selection processes when selecting partners and contractors.

Principle 3: Evidence Based Decision Making

Evidence based decision making at all levels is crucial to ensuring value for money. Informed decisions build on and contribute to organisational learning, continuous improvement and overall effectiveness. Evidence based decision making requires systematic, structured and rational approaches to decision making, framed around logical arguments informed by accurate analysis. It requires DFAT to focus on learning from past experience to avoid adopting methods and approaches that have not been successful in the past. At a strategic level, it requires that efficient systems are established to gather, collate and succinctly present empirical and qualitative evidence so that it can be utilised to inform contract and program management and as well as future management options. Closer relationships with partners and contractors are also crucial to ensure we are able to learn from and leverage their experience to deliver outcomes across the full set of DFAT's strategic objectives.

Principle 4: Proportionality

Value for money requires that organisational systems are proportional to the capacity and need to manage results and/or deliver better outcomes and be calibrated to maximise efficiency. An ongoing commitment to business process reforms to eliminate inefficiencies and duplication will help achieve this. Business processes, policies and systems should be designed with a clear understanding of transaction costs, measured against the potential benefits. The means of assessing value for money also need to be proportional to the scope and complexity of the investment being evaluated.

Principle 5: Performance and Risk Management

Performance and risk management are integral to value for money and to maximising the effectiveness of investments. Contracts, other investments and programs must be continuously reviewed for quality to ensure that they are meeting their objectives and delivering maximum impact. Robust approaches to risk management are also critical as they maximise the likelihood of achieving objectives and thereby contribute to overall effectiveness. Comprehensive integrity risk systems are particularly important to prevent fraud and corruption and ensure resource allocations reach the intended targets. Consideration of risk must also be coupled with risk appetite, recognising that effective investments require decision makers to engage with risk in order to maximise results.

Principle 6: Results Focus

DFAT must focus on results and impact. Effective contract, investment and program design, and robust implementation, are essential to ensure DFAT's objectives are met in a timely and cost effective manner. Clearly identified objectives and performance targets are crucial to facilitating a strong results orientation. Innovation and adaptability, based on clear and logical evidence, is also central to achieving results. Decision makers need to balance anticipated outcomes and benefits with the potential for increased risk and manage these accordingly. Flexibility is necessary to ensure approaches can be adapted to achieve results in volatile environments with changing priorities.

Principle 7: Experimentation and Innovation

Many of DFAT's investments are delivered in inherently risky environments. To maximise impact, creative and flexible approaches to the design and delivery of contracts, investments and programs are required. This can be fostered through the trialling of experimental and innovative mechanisms where there are reasonable grounds to expect better overall outcomes. This will require an appetite to trial new ways of delivery and a recalibration of risk tolerance.

Principle 8: Accountability and Transparency

Accountability and transparency are central to value for money as they strengthen responsibility for results and can contribute to the continuous improvement of organisational processes. Effectiveness requires that DFAT is held accountable both by taxpayers and by intended targets and beneficiaries for delivering results. This helps to create appropriate incentives for optimal performance. DFAT must hold partners accountable and demand transparency at all levels to facilitate honest dialogue about the overall impact of investments.

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