What is Value for Money?

There seems to be quite a variety in what is meant by Value and Value for Money in particular. Here's a few definitions from different disciplines that we use.

In the project and programme management arena, the OGC "Management of Value" defines value as being proportional to the satisfaction of needs (monetary and non monetary) divided by use of resources (money, people, time, energy & materials).

In the finance arena, UK MOD (JSP 507), UK Treasury (Green Book) and of course standard Investment Appraisal all use value as a financial return (ROI) in that value is the financial benefits divided by the financial cost (or subtracted to give NPV since the units are the same). This assume the minimum needs are met).

In the Decision Science / OR arena "order of buy" is defined in terms of benefit to cost ratio.

In the Triz arena, their terminology is called Ideality in which an ideal system is one gives you exactly what you need but requires no material to build, consumes no energy and does not need space and time to operate, It is often represented by the equation Ideality = Benefit / (Cost + Harms).

The common thread is that Value is a measure of what you/customer/stakeholder need compared to what they are prepared to invest in to meet those needs. So, in generic terms, value = benefits divided by costs. Benefits are what you need. Costs are what you need to invest.

So you can increase Value in one of five ways:

1. Increase the numerator and keep the denominator the same. i.e. increase the benefits to the customer but keep the costs the same. e.g. modern cars which are about the same price as earlier models but have more features such as GPS included. Or to pick up on an earlier comment a nail with annular rings to improve fixing but don't cost any more than regular nails. 
2. Keep the numerator the same but reduce the denominator. i.e. reduce costs but keep the benefits. e.g. UK supermarkets price comparisons where the same products are just cheaper. 
3. Increase the numerator and increase the denominator but make sure the numerator increases more than the denominator. i.e. increasing benefits incurs a cost but the benefits outweigh the cost increase. e.g. organic food, energy efficiency. 
4. Increase the numerator and decrease the denominator. i.e. increase the benefits and decrease costs. e.g. modern digital cameras are cheaper than ever but have much more functionality than previous cameras.
5. Reduce benefits and reduce costs but ensure the costs reduce more than the benefits. e.g. software with limited features that is free.

Hence, Value is really a function of Benefits and Costs. Using this equation as the definition means you can analyse several strategies to "Adding Value". One strategy is simply cutting costs (as long as the benefits stay the same) but it's by no means the only one and others should be explored.