# How does the VFM (value for money) algorithm work in 360?

Communicating VFM

360 has two methods for graphically representing value for money:

1. The Effectiveness vs Price scatter graph shows the best VFM in the bottom-right quadrant 2. The Effectiveness bar chart shows how bids have been rated with raw scores, risk assessed scores, and a final assessment (in which price has been considered) For both of these charts, a comparison price is needed.  The tendered price commonly sets the comparison price, but it may be calculated using any appropriate method.

Please note, the formulas and contents of The Algorithm, Example Data, Example Results, and the Explanation below are shareable as per the Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International (CC BY-NC-ND 4.0) rules.

simplylogical.net - 360 Tender Evaluations in the Cloud

## Multiple Algorithms to Suit Different Scenarios and Procurement Policies

### Method 1 - Automatic VFM Algorithm (the standard approach used by most)

This method is used for fixed-price tenders and quotes.  Using this method:

1. The request is marked Cost Associated
2. The Automatic algorithm is selected
3. Each tenderer must enter the price on a Price page of the questionnaire
4. The evaluation team scores each weighted question to calculate Raw Score for each response
5. Each evaluation team member's risk assessment is applied to calculate a Risk Assessed Score for each response
6. Each provider has VFM Points calculated using the formula:
`Risk Assessed Score divided by the Price multiplied by the Median Price`
7. For a Perfect VFM Points the score is calculated as either:
1. `100% divided by the Lowest Price Tendered multiplied by the Median Price`
2. `100% divided by the Budget multiplied by the Median Price`
8. Each provider has a VFM Percentage calculated using the formula:
`VFM Points divided by the Perfect VFM Points`

The Final Assessment can be displayed as either VFM Points or a VFM Percentage.  The VFM Percentage and can be displayed on a bar chart.

### Method 2 - Manual Price Weighting

This method is also used for fixed-price tenders and quotes.

Using this method:

1. The request is marked Cost Associated
2. The Manual algorithm is selected
3. A Price Percentage is specified (e.g. 50% if having a low price is just as important as having high quality)
4. Each tenderer must enter the price on a Price page of the questionnaire
5. The evaluation team scores each weighted question to calculate Raw Score for each response
6. Each evaluation team member's risk assessment is applied to calculate a Risk Assessed Score for each response
7. A ratio is calculated as:
`Risk Assessed Weighting vs Price Weighting`
8. Each provider Price Score is calculated as either:
1. `Lowest Price Tendered divided by the Tendered Price`
2. `Budget divided by the Tendered Price`
9. Using the ratio above, each provider has a VFM Percentage calculated

The Final Assessment is the VFM Percentage and can be displayed on a bar chart.

### Options

It is sometimes inappropriate to ask for a lump sum price yet helpful to have a comparison price when determining a value for money score.  For these situations:

1. Ensure that the Evaluators can Set/Adjust Price system setting is selected
2. Set the request is to be Cost Associated
3. Choose either the algorithm (Automatic or Manual)
4. Choose No - Evaluators will set the price for the Ask Providers for Price? option
5. Use any appropriate means to determine a comparison price, such as:
1. Defining a basket of goods
2. Determining the total cost of ownership
3. Using a fixed-term projection
4. Selecting a preferred option suite
6. Use the Edit Price feature to enter the lump sum value based on the figure calculated above

Avoid Probity Issues

To avoid probity issues, either:

• Define the method for determining a comparison price before approaching the market (and keep it secret until all bids are received)
• Use the Manual algorithm and set the price weight to 0%
When the price weight is 0%, the Final Assessment will match the Risk Assessed Score