What is Value for Money?
Value for Money is a principle that emphasizes achieving the best possible outcomes with the resources available. According to the Australian Government’s Commonwealth Procurement Rules, VfM means considering the whole-of-life cost of goods or services, not just the initial price. It ensures spending delivers tangible benefits while minimizing waste.
In construction, maintaining VFM is particularly important when dealing with project variations. Changes to a project’s scope, whether due to unforeseen conditions or design modifications, can significantly impact costs and outcomes. Understanding how to manage these changes effectively is key to maintaining VFM.
Learn more in this guide on Variation in Construction.
Value for Money Goes Beyond the Lowest Price
Many assume that value for money meaning in construction is simply about securing the lowest price. That’s not the case. Government procurement frameworks emphasize taking a big-picture view.
A big-picture approach considers:
- Total cost over time including future maintenance and operational costs
- Overall benefit to the project such as improved durability or efficiency
- Indirect economic and social impacts like job creation and environmental sustainability
For example, selecting a cheaper material for a road project might save money upfront, but if it leads to frequent repairs, it ends up costing more in the long run. A well-thought-out VFM approach ensures that spending decisions account for lifetime costs and benefits rather than just the initial price.
Key Value for Money Principles in Construction
To achieve value for money, decision-makers follow structured principles to guide procurement and project management. These principles ensure that projects are cost-effective, efficient, and aligned with long-term goals.
1. Cost Consciousness
Being mindful of costs doesn’t mean always choosing the cheapest option. Instead, it involves evaluating alternative solutions to find the most cost-effective approach without sacrificing quality. Scrutinizing costs across the project lifecycle ensures VFM is maintained.
2. Encouraging Competition
Competitive bidding ensures that contractors, suppliers, and service providers offer the best combination of price, quality, and innovation. Encouraging competition drives efficiency and prevents overpriced or underperforming solutions.
3. Evidence-Based Decision Making
Decisions should rely on historical data, industry best practices, and proven project outcomes. Lessons from past construction projects help identify risks, prevent inefficiencies, and ensure that value for money is achieved.
4. Proportionality
Project evaluation should match the scope and complexity of the investment. A large-scale infrastructure project requires a more detailed cost-benefit analysis than a smaller renovation. This approach ensures that resources are used efficiently.
5. Performance and Risk Management
Managing risks effectively prevents cost overruns and project delays. Regular performance reviews help ensure that a project stays aligned with its VFM objectives. Addressing risks early reduces the impact of variations and unexpected costs.
6. Results Focus
A strong focus on project outcomes ensures that every decision made contributes to delivering value for money. Clearly defined goals, performance metrics, and ongoing evaluations help keep projects on track.
7. Experimentation and Innovation
New construction techniques and technologies can improve efficiency and reduce long-term costs. Being open to innovation—such as using sustainable materials or prefabrication—can significantly enhance VFM.
8. Accountability and Transparency
Transparency in project decisions ensures that spending is justified and aligned with public or organizational goals. Holding all stakeholders accountable helps maintain trust and ensures that VFM principles are upheld.
How Variations Impact Value for Money
Contract variation in construction are inevitable. Whether due to unforeseen conditions, design modifications, or stakeholder requests, variations can impact value for money if not managed properly.
Key considerations when evaluating variations in lieu of value for money:
- Does the change still align with project objectives?
- What are the long-term cost implications?
- Will it affect quality, performance, or sustainability?
To understand how variations impact VFM, let's examine the relationship between cost, change resistance, and cost reduction potential throughout a project's lifecycle.
How variations impact Value for Money (VFM) across project phases.1. Cost Reduction Potential is Highest in the Early Stages
The Concept, Development, and Design phases offer the greatest potential for cost reduction. Changes at this stage are easier and cheaper, allowing for proactive risk management and detailed planning that prevent costly changes later.
2. Resistance to Change Increases Over Time
Once construction begins, modifications become more complex. Procurement commitments, established workflows, and tight deadlines make late-stage variations more disruptive and expensive. Stakeholder resistance grows, and even minor design changes can require material reorders, rework, and schedule delays—reducing VFM significantly.
3. Cost to Change Increases Over Time
Changes made in the later stages (e.g., during construction, operation, or replacement) become exponentially more expensive. A small design change during the concept phase might have minimal cost impact, while the same change during construction could lead to significant rework, material wastage, and delays.
This emphasizes the importance of early risk assessments, thorough planning, and well-defined specifications to control variations and ensure VFM.
Final Note on Value for Money
In essence, Value for Money is about delivering projects that meet the required standards and goals at the most efficient price point, even when unexpected changes arise.
Achieving VFM is about making strategic choices that balance quality, efficiency, and long-term value. It means considering the entire lifecycle of a project, from design and construction to maintenance and future adaptability.
