Module 7. Assessing value for money

Calculating programme costs

VFM indicators are only meaningful if programme costs are properly calculated. This can be a relatively difficult task in programmes using a market systems approach where a large proportion of programme costs are made up of facilitation costs (usually relating to staff time) rather than the purchase of tangible inputs. Appropriately attributing staff time to individual interventions is a key step in generating an accurate cost picture.

Components of programme financial cost

Programme financial costs are often divided into three components: direct costs (e.g. value of contracts/grants, costs of equipment purchases); facilitation costs (e.g. costs of long term technical assistance working on particular interventions (LTTA), costs of short term technical assistance hired for specific interventions (STAA), costs of travelling to field sites and conducting work in the field, M&E costs); and overhead costs (e.g. office costs, operational staff).

Attributing costs

Programme managers (and indeed donors) typically want to understand which interventions or sectors within a programme portfolio represent better (or worse) value for money. This requires attributing costs arising from facilitation and overhead to particular interventions (or at least to sectors).

Direct costs are typically the most straightforward to attribute to particular interventions given that these usually comprise the grants or contracts drawn up for particular interventions and the cost of specific equipment.

Programmes using a market systems approach typically incur significant facilitation costs (own or outsourced) relating to components of time for intervention and sector managers, costs associated with monitoring interventions and fieldwork costs.

Facilitation and overhead costs are not always directly attributable to particular interventions but may span multiple interventions within a sector, or the programme as a whole. A number of techniques can be used to attribute the costs to particular interventions or sectors: 

• Staff time: for facilitation costs, the main expenditure item is likely to be certain elements of staff time – chiefly the time of the sector-specific technical staff working on multiple interventions. This can be attributed to interventions in different ways, either using timesheets or by asking staff to provide an estimates of the amount of time they spend on each intervention
• Travel expenses: travel expenses are often a large component of facilitation costs on programmes using a market systems approach. Travel request forms provide a useful way to attribute travel expenses to particular interventions. Non-facilitation related travel should be treated as an overhead cost
• Overhead costs: Overhead costs which cannot be attributed to particular interventions are typically spread across sectors and interventions. Frequently, they are attributed in a manner proportional to the direct cost associated with each intervention.