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ACCA Strategic Professional · Advanced Performance Management · Performance improvement models and techniques

Greenfield Council runs a public leisure service. Its board wants to judge whether the service delivers good value for taxpayers' money. Which set of measures best reflects the 'three Es' of value for money?

The three Es are economy (low cost of inputs for a given quality), efficiency (output achieved per unit of input) and effectiveness (extent to which intended outcomes are achieved). Profit-based ratios are not appropriate for a public service.

  1. AEconomy: cost of inputs per unit purchased; efficiency: output per unit of input; effectiveness: achievement of intended outcomesCorrect
  2. BEconomy: output per employee; efficiency: achievement of intended outcomes; effectiveness: cost of inputs per unit purchased
  3. CEconomy: achievement of intended outcomes; efficiency: cost of inputs per unit purchased; effectiveness: output per unit of input
  4. DEconomy: profit margin; efficiency: return on capital employed; effectiveness: earnings per share

Explanation

Economy concerns acquiring inputs at lowest cost for a given quality, efficiency concerns the relationship between inputs and outputs, and effectiveness concerns whether outcomes meet objectives. The second and third options mix up the definitions. The last option uses profit measures that are unsuitable for a non-profit service.

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