Guidance on Value for Money: Explanatory Note

This guidance is for all officials putting submissions to DfT Ministers about investment decisions and choices. It covers the advice that DfT officials give to Ministers on value for money; it is for Ministers to make the final decisions, based on value for money and other considerations.

We are releasing the guidance, and placing it on the DfT website. Our objective in doing so is to encourage and facilitate the assessment of the opportunity cost of different investment choices, by making clear the value for money considerations that will be put to Ministers. We expect this to be of interest not only to scheme promoters and their partners/consultants, but also to those whose role at local and regional level includes advising on choices between projects.

Ministers make decisions on the basis of a series of considerations, including:

  • Value for money
  • Practicality / deliverability
  • Public acceptability
  • Distributional and equity impacts
  • Affordability and financial sustainability
  • Contribution to central government, local and regional objectives
  • The amelioration of identified problems

This guidance focuses on the way to assess the first of these, which therefore forms one part of the overall advice to Ministers.

Value for money measures the benefits for each £1 of costs. It includes both the benefits and costs that can be counted in monetary terms (which can be described as a Benefit/Cost Ratio) and other non-monetised impacts such as regeneration and environmental effects.

The guidance explains how both elements can be assessed, especially in the technically difficult area where benefits are not readily monetised.

It goes on to explain how the result of this analysis will place any scheme into one of four value for money categories: high, medium, low or poor. Of course, in practice, value for money is a continuum and the four categories cover a broad range of value for money.

But the categories do bring clarity and consistency to value for money assessment. They also provide a basis for choosing between schemes. The presumption, on value for money grounds alone, is that the Department would not approve schemes with poor value for money; approve only a few with low value for money, and only then on the recommendation of a Director General; approve some, but not all, with medium value for money; and many with high value for money.