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Practice Guide to Auditing Efficiency

Efficiency, Economy and Effectiveness

Economy, efficiency, and effectiveness are highly interrelated concepts. While this Practice Guide focuses on audits of efficiency, it recognizes that performance audits may often include components of economy and effectiveness as well.

Economy, efficiency, and effectiveness are commonly described as the “3 Es”, characterized as follows:

  • Economy — Getting the right inputs at the lowest cost (or getting a good deal).
  • Efficiency — Getting the most from the inputs (or getting a lot for the efforts).
  • Effectiveness — Getting the expected results from the outputs (or doing the right things).

Figure 1 describes elements of the 3 Es as well as the relationships between inputs, outputs and outcomes.

Figure 1

Relationships Between Inputs, Outputs and Outcomes

Relationships Between Inputs, Outputs and Outcomes

Economy, efficiency, and effectiveness are all essential components of sound program management, the goal of which is to deliver on program objectives defined in public policies, regulations, and legislation.  In practice, this means that program managers and officials entrusted with public resources are responsible for carrying out functions and providing services to the public effectively, efficiently, and economically. Figure 2 shows the roles played by the 3 Es in public sector program management and the interrelationships among them. 

Figure 2

Program Management and The 3Es

Program Management and The 3Es

Figure 2 also shows that both economy and efficiency play a central role in ongoing program management, or day-to-day administration. Together, these two components support the achievement of value for money. Figure 2 also suggests that economy and efficiency are interrelated but somewhat separated from effectiveness. In theory, a program could be economical and efficient without being effective; that is, it could be very good at producing the wrong outcome.