Performance Management · Performance analysis in private sector, public sector and not-for-profit organisations

Public Sector Performance and Value for Money (3Es) in ACCA PM

Updated 11 October 2026 · Fact-checked

Public sector bodies exist to provide services, not to make profit. You judge them by value for money: economy (spending less on inputs), efficiency (getting more output per input) and effectiveness (achieving the objectives). In the exam, define each E, link it to a measure, and apply it to the scenario.

Understand Public Sector Performance and Value for Money

A private company has a clear goal: profit and shareholder wealth. A public sector body, such as a state hospital, school or local council, has a different goal. It must deliver services to the public within a budget funded mainly by taxes. There is often no profit figure to judge it by.

So performance is judged by value for money (VFM): did the body use its resources well to deliver the service? VFM is assessed using the 3Es.

Economy: acquiring inputs of the right quality at the lowest cost. Spending less.
Efficiency: the relationship between inputs and outputs. Getting the most output from the inputs used, or using the fewest inputs for a given output.
Effectiveness: how far outputs achieve the objectives or outcomes the body was set up for.

The 3Es can pull against each other. A hospital can buy cheap supplies (economical) but of poor quality, which harms patient recovery (ineffective). A school can raise class sizes to cut cost per pupil (efficient) while exam results fall (ineffective). Good answers show you see this tension.

Features that make public sector measurement hard: multiple and sometimes conflicting objectives, outputs that are hard to quantify (such as public safety), no profit measure, many stakeholders with different views, and political influence on targets. Outcomes may also depend on factors outside the body's control, such as the health of the local population.

League tables rank similar bodies, for example schools or hospitals, on published indicators. They allow comparison and public accountability. But they can distort behaviour, as staff focus on what is measured, and they may ignore differences in the population served.

Key rules to remember

Economy: Economy = spending less on inputs, i.e. actual cost of inputs compared with the planned or benchmark cost for the same quality; Example measure: cost per unit of input, such as cost per nurse hour or cost per textbook bought. Quality must stay the same.
Efficiency: Efficiency = outputs ÷ inputs (or inputs per unit of output); Example measure: patients treated per bed, or cost per patient treated. Compare with a target or a prior period.
Effectiveness: Effectiveness = actual outcome achieved compared with the objective set; Example measure: percentage of patients recovered or proportion of pupils reaching a set grade. Often a ratio to a target.
Value for money: VFM = economy + efficiency + effectiveness (all three together); A body gives good VFM only when all three are acceptable. Strong in one E does not guarantee the others.

How to solve Public Sector Performance and Value for Money questions

Use this method for any question on public sector performance or VFM. It works for both objective cases and written answers.

1Identify the organisation and its objectives. Ask what the service is for and who benefits.
2Classify each piece of data as an input, an output or an outcome. Inputs are resources used, outputs are services delivered, outcomes are the results for users.
3Match the data to the right E. Input cost points to economy, output per input points to efficiency, outcome against objective points to effectiveness.
4Calculate any ratio needed, such as cost per patient or pass rate. Compare it with a target, a prior period or a similar body.
5Comment on what the figure means and whether the Es conflict. Cheap inputs may harm quality, and high throughput may harm outcomes.
6Note limits of the measure: unquantifiable outputs, differences between bodies, and behaviour distortion.
7Give a clear conclusion or recommendation linked to the scenario.

Quickest way: Input, output, outcome shortcut

When to use it: Use this in Section A and Section B objective questions where you must decide which E a statement or measure describes.

Ask: is it about the price or quality of what was bought? Choose economy.
Ask: is it about how much was produced for the resources used? Choose efficiency.
Ask: is it about whether the aim was achieved? Choose effectiveness.
If two seem to fit, look for the word that decides it: cost of inputs, per unit of input or output, or target or objective achieved.
Check any calculation direction: lower cost per unit is better for economy and efficiency, higher achievement is better for effectiveness.

Common mistakes in Public Sector Performance and Value for Money

Treating economy and efficiency as the same thing.
Both involve cost, so they seem alike.
Fix: Economy is the cost of inputs bought. Efficiency is output achieved from the inputs used. Ask whether the figure is about buying or about using.
Calling a lower-cost result effective.
Students link saving money with success.
Fix: Effectiveness is about meeting objectives. A cost saving only shows economy or efficiency. Check the outcome.
Saying public sector bodies have no objectives that can be measured.
There is no profit figure, so students think nothing can be measured.
Fix: Say that objectives exist but are multiple and harder to quantify. Suggest proxy measures such as waiting times or pass rates.
Praising league tables without limits.
Rankings look objective and simple.
Fix: Give both sides: they promote accountability and comparison, but can cause target-chasing, ignore differing circumstances and hide unmeasured aspects of quality.
Giving only a number with no comment.
Students run out of time after calculating.
Fix: Always add what the number means, how it compares and what could explain it. Written marks need interpretation.
Confusing outputs with outcomes.
Both describe results.
Fix: Output is the service delivered, such as operations performed. Outcome is the effect on users, such as patient health. Effectiveness uses outcomes.

Worked examples

Example 1

A public hospital treated 4,800 patients last year using 120 beds at a total cost of ₹14,40,00,000. This year it treated 5,400 patients using 120 beds at a total cost of ₹15,12,00,000. In both years, 90% of patients were discharged recovered in line with the target of 90%. Calculate cost per patient and patients per bed for each year, and comment on efficiency and effectiveness.

Show the solution

Last year cost per patient = ₹14,40,00,000 ÷ 4,800 = ₹30,000.
This year cost per patient = ₹15,12,00,000 ÷ 5,400 = ₹28,000.
Last year patients per bed = 4,800 ÷ 120 = 40.
This year patients per bed = 5,400 ÷ 120 = 45.
Efficiency has improved. Cost per patient fell by ₹2,000 and bed use rose from 40 to 45 patients per bed.
Effectiveness is unchanged. The recovery rate stayed at 90%, which meets the target.
Comment: the hospital treated more patients at lower unit cost without hurting outcomes, so VFM has improved. The recovery rate should still be watched as throughput grows.

Answer: Cost per patient fell from ₹30,000 to ₹28,000 and patients per bed rose from 40 to 45. Efficiency improved, effectiveness stayed on target at 90%, so value for money improved.

Example 2

A local council buys 10,000 textbooks for its schools. Last year it paid ₹400 per book. This year it paid ₹360 per book for books of the same quality. The average pupil pass rate stayed at 70% against a target of 75%. Assess economy and effectiveness.

Show the solution

Economy: the price per book fell from ₹400 to ₹360, a saving of ₹40 per book.
Percentage saving = 40 ÷ 400 = 10%.
Total saving = 10,000 × ₹40 = ₹4,00,000.
Quality is the same, so this is a genuine gain in economy.
Effectiveness: the pass rate is 70% against a target of 75%, a shortfall of 5 percentage points.
Conclusion: the council has improved economy but is not effective on this measure. Saving on books does not by itself improve results. Other causes such as teaching quality should be explored.

Answer: Economy improved: ₹40 less per book, a 10% or ₹4,00,000 total saving at the same quality. Effectiveness is below target (70% against 75%), so value for money is only partly achieved.

Exam tips

Define the three Es in one line each before applying them. It is easy marks and shows structure.
Use the scenario's own figures and name the E for each measure you calculate.
In written parts, always discuss both a limitation and a benefit of league tables or targets, then link it to the organisation given.
When asked for problems of measurement, group them: objectives, outputs, stakeholders and external factors. Add an example for each.
In objective questions, read the exact verb. Cost of inputs means economy, output per input means efficiency, target achieved means effectiveness.

Practice questions from Performance analysis in private sector, public sector and not-for-profit organisations

Public Sector Performance and Value for Money in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Public Sector Performance and Value for Money: frequently asked questions

What is the difference between economy, efficiency and effectiveness?

Economy is buying inputs at the lowest cost for the required quality. Efficiency is getting the most output from the inputs used. Effectiveness is achieving the objectives or outcomes the body was set up for.

Why is performance harder to measure in the public sector?

There is no profit measure, objectives are many and may conflict, and outputs are often hard to quantify. Stakeholders also disagree on what success means, and outcomes can depend on factors the body cannot control.

What are the problems with league tables?

They can encourage staff to focus on measured items and ignore the rest. They may also compare bodies serving different populations unfairly, and they can lead to data manipulation. Their benefit is public accountability and easy comparison.

Can the 3Es conflict with each other?

Yes. Cutting input costs may lower quality and reduce effectiveness. Raising throughput may improve efficiency but harm outcomes. Good answers point out these trade-offs and say all three must be balanced.