Evaluating Efficiency

Abstract

The term ‘efficiency’ is often misunderstood and confused with the term ‘economy’. Whereas economy is concerned with the costs involved in providing services, efficiency deals with the relationship between the inputs (costs) on the one hand and the outputs and/or outcomes (benefits) of services on the other. Efficiency seeks to assess what resources are used in providing services and what the services actually produce; in short it is the ratio of total benefits to total costs. Therefore, whilst financial costs are taken into account efficiency goes beyond a purely financial appraisal of a scheme to include broader issues, such as the inputs of care provided by family and friends in caring for people in the community or the effects of treatment on quality of life. What appears to be the most economical treatment is not necessarily the most efficient. For example, a scheme designed to discharge longterm patients from a psychiatric hospital due to close, to the cheapest alternative, such as health authority houses on a large housing estate in an area of relatively high deprivation, may well result in many additional costs being incurred both by the authorities and by society as a whole.