Last weekend, my lovely wife Joanna asked me if I fancied a croissant. This is her coded message to me that she fancies one, and would I go to the local shop and get one. The Co Operative Store here is great: right inside the door a display of freshly baked goods, including a croissant for £1.80. Yet a gentle move to the left among the sliced bread reveals Co Op Luxury Croissants at 4 for £2.70.Value for money? No contest — you can guess what I brought home.
But that is only value for money as it applies to me. For context, bear in mind that around 24% of the world population — say 1.84 billion people — lives on about £2.70 per DAY. That makes my purchase a frivolous expense.
It was a privilege this week to work with Langley House Trust, a charity who help people being released from prison to return to ‘normal’ life. Their vision is of a crime-free society where no-one is unfairly disadvantaged or excluded because of their past. Not my usual target audience, but that’s’ good, it gave me a different perspective.
I was talking to them about value for money, which if you are a charity is very important. I imagine it is also very important for you too.
There is plenty of money in the world now — despite what those in the UK might think having seen some of the commentary on Rishi Sunak’s ‘Budget’ this week. But how do we measure value?
Value does not have to mean cheap. I used a 19th century quote from a philosopher of the time, John Ruskin. “It’s unwise to pay too much, but it’s worse to pay too little. When you pay too much, you lose a little money — that is all. When you pay too little, you sometimes lose everything, because the thing you bought was incapable of doing the thing it was bought to do.”
His words from some 150 years ago chime directly with a BBC report this week on the durability ( or lack of) of modern washing machines. Founder and chief executive of UK Manufacturer Ebac, John Elliott, thinks most washing machines are “quite well built”, but does have his doubts about the cheapest ones on the market. “There’s some cheap washing machines — they sell them at a price lower than we can buy the components. That tells you something, doesn’t it?”
So what happens when we pay a bit more?
An email from a car manufacturer to me this week offered a lovely new car, which because of their special offer, would only cost me £1.90 (say a really good croissant) per mile, excluding fuel, insurance, road tax or servicing. If I did over 6000 miles a year it would, of course, cost more. Mind you, that £1.90 a mile also excludes the feeling I would get from having it sat on my driveway, which at 6000 miles/year, would be the vast majority of the time.
Paying more does not necessarily equal greater value. It depends not on value for money, but the values of who is paying. You already have an idea of my values from croissants and cars.
For organisations value is frequently measured by amounts of money, or other quantitative measures — Key Performance Indicators (KPIs). These are useful measures for productivity, but too great a focus on output may mean you miss what you need to be doing. Even Langley House Trust has KPIs which their regulator looks at — useful tools for their job — but they have a higher mission.
For them, if they provide value to their clients — recently released former prisoners — then at the same time they provide value to their donors, who provide money to help create a crime free society. The interests of their clients and donors are directly aligned.
The best value lies where there is not just exchange of money for goods or service, but where there is also alignment of people’s interests and values.
In the UK for the next couple of weeks, and in many parts of the world, shopping is limited to ‘essential’ purchases only. Essential for me could be another croissant. Even at £1.80 a time, if it keeps Joanna content, that is a price worth paying.
https://www.worldbank.org/en/topic/poverty/overview
Buzzwords of the Week — Net Present Value (NPV)
Definition — (NPV) is the difference between the present value of future cash inflows and the present value of future cash outflows over a period of time. NPV is used in capital budgeting and investment planning — a surplus NPV is usually a positive signal.
Alternate View — Key part of investment appraisal. But crucially dependent on the discount rate used when calculating the Discounted Cash Flow (DCF, see above). Small differences in rate and length of time have huge differences in NPV. Should be viewed alongside the Internal Rate of Return (IRR, again see above) — where an NPV of zero shows the rate for that project.
Value for Money?
