How does the VFM (value for money) algorithm work in 360?
Communicating VFM
360 has two methods for graphically representing value for money:
- The Effectiveness vs Price scatter graph shows the best VFM in the bottom-right quadrant
- 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.
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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:
- The request is marked Cost Associated
- The Automatic algorithm is selected
- Each tenderer must enter the price on a Price page of the questionnaire
- The evaluation team scores each weighted question to calculate Raw Score for each response
- Each evaluation team member's risk assessment is applied to calculate a Risk Assessed Score for each response
- Each provider has VFM Points calculated using the formula:
Risk Assessed Score divided by the Price multiplied by the Median Price
- For a Perfect VFM Points the score is calculated as either:
100% divided by the Lowest Price Tendered multiplied by the Median Price
100% divided by the Budget multiplied by the Median Price
- 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:
- The request is marked Cost Associated
- The Manual algorithm is selected
- A Price Percentage is specified (e.g. 50% if having a low price is just as important as having high quality)
- Each tenderer must enter the price on a Price page of the questionnaire
- The evaluation team scores each weighted question to calculate Raw Score for each response
- Each evaluation team member's risk assessment is applied to calculate a Risk Assessed Score for each response
- A ratio is calculated as:
Risk Assessed Weighting vs Price Weighting
- Each provider Price Score is calculated as either:
Lowest Price Tendered divided by the Tendered Price
Budget divided by the Tendered Price
- 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:
- Ensure that the Evaluators can Set/Adjust Price system setting is selected
- Set the request is to be Cost Associated
- Choose either the algorithm (Automatic or Manual)
- Choose No - Evaluators will set the price for the Ask Providers for Price? option
- Use any appropriate means to determine a comparison price, such as:
- Defining a basket of goods
- Determining the total cost of ownership
- Using a fixed-term projection
- Selecting a preferred option suite
- 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
Related articles
- What are the key terms in 360? (definitions/lexicon)
- How to weight groups of criteria (sections) in 360 to make some more important than others
- How to weight criteria (questions) in the 360 internal portal to make some more important than others
- /wiki/spaces/CS/pages/467468419
- How to review and adjust the weights of all criteria (sections and questions) simultaneously in the 360 internal portal
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