Scribd
Upload
361 views10 pages

Productivity Calculation

Productivity is a ratio of output to inputs used in production. It can be measured as single-factor productivity using one input like labor, or multi-factor productivity using multiple inputs like labor, materials, energy, and capital. Precisely, productivity equals output divided by inputs, where inputs and outputs can be measured in units or dollars. Examples show how to calculate labor and multi-factor productivity percentages based on production and cost data from different time periods.

Uploaded by

bernatchezmaxim
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
361 views10 pages

Productivity Calculation

Productivity is a ratio of output to inputs used in production. It can be measured as single-factor productivity using one input like labor, or multi-factor productivity using multiple inputs like labor, materials, energy, and capital. Precisely, productivity equals output divided by inputs, where inputs and outputs can be measured in units or dollars. Examples show how to calculate labor and multi-factor productivity percentages based on production and cost data from different time periods.

Uploaded by

bernatchezmaxim
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
You are on page 1/ 10

Productivity

Productivity
• Productivity is the ratio of output (goods and services) divided by the factor input (resources such as labour and
capital).

• Productivity measures

- Single factor productivity (one factor)

- Multi factor productivity (>1 factor)

Important Note!
Production is a measure of output only and
not a measure of efficiency

One resource input → single-factor productivity Multiple resource inputs → multi-factor productivity

2
And a more precise measure
• Productivity = Output / Input

• Input and/or output can be measured in units or in $.

• Labour productivity (single factor) = number of units produced / number of units of labour used.

- For a comparable interval (a day, a month, a year…)

- Example: if, in one month, we produced 1000 units with 250 labour hours, labour productivity = 1000/250 = 4 units per
labour hour.

3
Multi factor productivity
• In this case, the denominator must be expressed or transformed in a common unit (i.e. $) to add all the factor
input.

Output
Productivity =
Labour + Material + Energy + Capital + Miscellaneous

4
Example - productivity calculation
• A team of 4 people works 8 hours/ day and processes 8 files per day. Hourly wage = $20, overhead costs =
$400/day.

• A new system would allow the team to process 14 files per day. Suppose wages are unchanged but overheads
double to $800/day.

5
Labour productivity
• Current system: 8 files/32 hours = 0.25 file/hour

• New system: 14 files/32 hours = 0.4375 file/hour

• An increase of (0.4375-0.25)/0.25 =75%

6
Multi-factor productivity
• Current system:

• 8 files/($640+ $400) = 0.0077 file/$

• New system:

• 14 files/($640 + $800) = 0.0097 file/$

• An increase of (0.0097-0.0077)/0.0077 =25%

7
Example - single-factor productivity
Eric makes billiard balls in his Nova Scotia plant. With the recent increase in his operating costs, he is now
interested in increasing efficiency of his plant. Eric would like to determine the productivity of his organization. He
is interested to know if his organization is maintaining the manufacturing average of 3% increase in productivity.

Table below provides data representing a month from last year and an equivalent month from this year:

Calculate the productivity percent change for each of the categories in the table, and then determine the
improvement for labor-hours which is the typical standard for comparison.

8
Example - multi-factor productivity
Eric determines his costs to be as follows:
- Labour: $10 per hours

- Resin: $5 per kilogram

- Capital expense: 1% per month of investment

- Energy: $0.50 per BTU

Determine the percentage change in productivity for one month of last year versus one month of this year, on a
multi-factor basis with dollars as a common denominator.

9
References
• Operations Management, Heizer J. and Render B.,
• Introduction to Operations Management, Terwiesch C., University of Pennsylvania
• Strategy Execution, Johnson, E., Vanderbilt University
• Fundamentals of Business Strategy, McCann B., Vanderbilt University
• Matching supply with demand, Cachon, Gerard, Terwiesch, Christian

10

You might also like