Efficiency and productivity

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This is a topic area that can be divided into an assortment of sub-sectors. Within this worksheet I intend to cover the essentials of efficiency, productivity, resource management and how to measure them all. There are many ways in which you can quantify efficiency, productivity and resource management; however I will only elucidate the most frequently used. These three areas are all associated to the area of performance within a business.

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Why measure performance?

The basic purpose of any measurement system is to provide feedback, relative to your goals, that increases your chances of achieving these goals efficiently and effectively. Measurement gains real value when used as the basis for timely decisions. The ultimate aim of implementing a performance measurement system is to improve the performance of the organization. If you can get your performance measurement right, the data that you generate will tell you a vast amount; where you are, how you are doing and where you are going. Efficiency:

Being efficient is making the best use of resources, so that the highest numbers of quality items / services are produced for the lowest cost per item. Efficiency can be measured in a huge number of ways within business. Two of the most commonly used ways to measure efficiency within business are Unit Cost and Productivity. I shall firstly explain Unit Cost.

Efficiency can be measured by finding out the cost per item produced over a period of time. If it costs less to produce an item, the business is more efficient.

When considering this, apparently, simple remark, a number of factors must be taken into consideration. The first is the labour costs, the costs of the raw materials, the build costs, administration costs and, critically, product wastage costs. Product wastage costs are the amount of money spent producing faulty goods. Poor quality products lead to more wastage, which in turn leads to higher unit costs. Revenue is lost when sales are lost. Reducing wastage will improve efficiency.

Consider this:

What amount of time and money are spent when inspecting a vehicles repair quality at the end-of-the-line? How much does it cost to rectify any problems? In many scenarios, the customer then becomes the quality inspector and checks that the work is satisfactory. If the customer is unhappy, the costs can be enormous for the business; lost opportunities, employee moral and the companys image

As a result of this, a manufacturing methodology is being used all around the world. It is called lean production and was originally used by Toyota in the 1950s, developed by Taiichi Ohno. Ohno discovered that by improving quality, production would instantly improve and product wastage and resources were reduced, hence a lean enterprise. This improved the efficiency. However, it is important to realize that making operational processes lean is a major task, requiring total commitment from staff and management.

The next way in which efficiency within business can be measured is productivity. Efficiency can be measured by output per worker over a certain amount of time. This can be used to motivate when it is linked to pay. Productivity is the efficiency with which output is produced by a given set of inputs. The inputs can be measured in a vast number of ways, labour and raw materials are two of the most important. These two factors can be measured in a number of ways, the most commonly used is labour hours and raw material cost. The output can be measured by the number of quality items. This can be measured by profit made and / or the actual number of items. Output/input is the way in which productivity can be calculated. Unit cost and productivity are both connected with efficiency measuring it, but this cannot change your business alone. You must then take your data gathered, interpret it and act upon the results. In many cases the organization will look to then improve the efficiency of their business. I have already mentioned one way in which this can be done now I shall briefly list a few more.

New machinery and technology can be immensely valuable to many businesses, but not all. Businesses that specialize in the tertiary sector may not benefit from new machinery and technology as much as the quaternary sector. However, it would still greatly improve services. By updating machinery and technology it will improve the productivity of the business, reduce unit costs and improve the quality of the products (Lean Production).

Linking payment to productivity is a principle that has been previously covered. Businesses can motivate workers to work more efficiently by giving them more pay for more output. Businesses can improve efficiency by cutting costs. For example; buying from a cheap supplier. This is something simple that can be done to vastly improve the efficiency by reducing the unit cost.

Better training is an option often overlooked. If workers are better trained, the quality and productivity of their work will be higher. In turn, unit costs will therefore fall. Resource management is incredibly important to an efficient organization. Teamwork and more responsibilities can raise the motivation of a worker. Consequently, they will raise their productivity and quality.

Just in time stock control cuts the stock levels in the business. This therefore decreases the unit cost, as stock is exceedingly expensive to store.

On the other hand, you must consider the fact that not all of the above will work all of the time, and there are many disadvantages. Just in Time stock control is a big risk and if it goes wrong can have a catastrophic effect. Better training can be expensive and you may not make a worthwhile return. In addition to this machinery and technology is also very expensive to initiate.

Why Measure Performance?

Performance is measured so that you can evaluate how well the business is doing and set new goals, according to how your business is performing. Measuring performance is essential to any successful company, as through getting an idea how the business is doing, changes can be made for the better, �streamlining� the business, removing any faults and problems which could reduce the amount of money taken in.

Measures of productivity

Measuring labour productivity:

Labour Productivity can be found by dividing the output over a certain period of time by the number of number of workers employed:

Labour productivity =

   Output [per period] divided by the number of employees [per period]

There are several other measures of productivity. � Output per hour / day / week � Output per machine

Measures of efficiency � Measuring Efficiency:

     Efficiency can be measured in a number of ways within business. The two most commonly used ways to measure efficiency within business are Unit Cost and Productivity.

Unit Cost-Efficiency can be measured by finding out the cost per item produced over a period of time. If it costs less to produce an item, the business is more efficient. When working this out, you need to consider a number of factors: The labour costs, the costs of the raw materials, the building costs, administration costs and, most importantly, product wastage costs. Product wastage costs are the amount of money spent producing faulty goods. Poor quality products lead to more wastage, which in turn leads to higher unit costs. Reducing wastage will improve efficiency.

The other way in which efficiency can be measured is productivity. Efficiency can be measured by output per worker over a certain amount of time.

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