Overview of Accenture’s PSV Model
In the private sector, value is generally defined as the total return to shareholders. The Shareholder value methodology states that value is created as a combination of growth and spread, measured as Return on Invested Capital minus the Weighted average cost of capital. Although this definition is not applicable directly to the public sector, it is possible to learn some of the lessons of the SVA and apply them to the government sector. Public Sector Value is the result of this application.
The Accenture Public Sector Value Model2 (PSV) is built upon the two primary ‘‘levers’’ of public value – outcomes and cost effectiveness. The model assumes that public sector value is created through generating improved outcomes in a more cost-effective manner.
Outcomes are a weighted basket of social achievements. They are based on an agency’s reason for being as well as on citizen’s expectations of that agency. They are less focussed on the results of a process, and more orientated towards whether an organization achieves its goals.
Cost-effectiveness assesses what financial costs were borne by the agency, and ultimately the citizens, in order for that agency to achieve its level of outcomes. Cost effectiveness is defined as the measurement of outcomes divided by a measurement of cost .
Accenture’s public sector value model looks at both outcomes and cost effectiveness. By increasing one or the other, governments can be understood to be creating value. An agency creates unambiguous value for its citizens when both outcomes and cost effectiveness increase at the same time. By increasing one at the expense of another, governments can be understood to be making a trade-off between their two fundamental means of creating value. A decrease in both levers represents a clear reduction in public value.
Accenture’s Public Sector Value Model provides a baseline for comparing performance of a particular government agency over time and/or compared to other agencies. Agencies can isolate individual outcomes and determine which factors are the most meaningful for driving overall value. The Accenture Public Sector Value Model looks at relative change. It cannot indicate whether an agency is performing well or badly, but it can show whether an agency is doing better or worse than the year before, or than other agencies. It can also indicate which actions were taken to cause those improvements and help pinpoint problems.
Cost Effectiveness Defined
So far, this paper has outlined how we plan to use and assess Outcomes. However, we also believe that it is vital to include an assessment of the Cost-Effectiveness of an organisation in any evaluation of the value which it is delivering. Citizens are often taxpayers and therefore have a vested interest in the efficient operation of their services. Even where a citizen is paying no tax, money spent on a public service is money which could be spent elsewhere, potentially delivering other valuable outcomes. The opportunity cost of resourcing a public service is therefore an important driver of value.
Our approach is to look at the resourcing an organisation requires to deliver a particular set of outcomes. If this resourcing can be reduced without any change in an organisation’s Outcomes then this represents an improvement in the value delivered to the public.
Within the private sector the Return on Capital Employed (ROCE) is the return the investor has received, as a percentage of their initial investment. This measures how well an organisation uses assets to generate profit. In the public sector, the return is the generation of Outcomes. However, we are not only trying to measure how well a public sector organisation has used assets to generate profit. Outcomes represent the gross product of activity. Public sector organisations spend their budgets in operating expenses to run the agency as well as in capital expenditures, which add to the asset base of the agency.
