Measures of Productivity

You should choose a convenient measure of productivity, based upon the type of operation your business is involved in and what you're producing. You'll also need to choose a time frame in which to measure it.

Productivity will mean something different to each business. The standard measurement of productivity is output per worker-hour, or the ratio between the number of hours worked to total output. You can also measure your productivity per week or month, if each unit of production takes more than an hour to create. Output can be measured in terms of:

• volume
• quantity of items produced
• dollar value of items produced

 A graphic designer's productivity may include aspects of how many jobs he or she completes in a month, as well as how quickly the jobs were produced. A company that builds and sells widgets, on the other hand, might measure productivity in terms of the number of widgets built and sold over a month's time.

Manufacturing businesses. If your business is involved in manufacturing, consider using output per worker-hour or number of worker-hours required to produce a single product.

Samples of measurements for production workers divide the total number of hours paid per month by the number of units produced in order to determine both the cost of production of a unit and the number of hours required to produce the unit.

 If you have five employees who each work 160 hours per month and they produce 100 widgets in a month, then the unit cost of a widget is: 5 employees x 160 hours = 800 worker hours 800 worker hours divided by 100 widgets per month equals 8 worker hours per widget. That is the number of hours required to produce the unit. If you pay each of the workers \$8.00 per hour, then the production cost of the unit is \$8.00 x 800 worker hours = \$6,400 per month \$6,400 per month divided by 100 widgets per month equals \$64 per widget.

Service industries. If your business is in a service industry, you may have a harder time measuring productivity due to the somewhat intangible nature of the product involved. Service industries can base productivity on the number of tasks performed or the number of customers processed per given period of time. Other measures might be whether the service delivered measured up to company, industry, or customer quality standards and whether certain deadlines were met, if applicable.

Professional employees can keep personal time sheets to indicate the number of hours spent on a given task. Quantity of work is a possible measure, such as number of service calls made per day or number of contracts written. Clerical workers can be given specific amounts of work to determine the relative time it takes to complete a given task.

Sales performance. The most effective means of measuring performance by sales representatives is by taking into account and measuring each of these factors:

• The volume of sales in dollars per given unit of time: sales volume by itself will not indicate how much profit or loss each sale represents, as a salesperson may make too many concessions or sell to poor credit risks in order to make the sale.
• The number of calls made upon existing accounts: the number of calls made by a sales rep. alone does not indicate if those accounts with the most profit potential are being serviced.
• The number of new accounts opened.
• The dollar amount expended per sale: comparing sales over given periods of time, say monthly periods each year, will not account for changes in products, prices, competition, or routes.

Other methods. Another method for measuring productivity involves determining the length of time that an average worker needs to generate a given level of production. You can also observe the amount of time that a group of employees spends on certain activities (such as production, travel, or idle time spent waiting for materials or replacing broken equipment). The latter method can determine whether the employees are spending too much time away from production on other aspects of the job that can be controlled by the business.

 If you're using more than one measure of productivity, make sure that the standards are comparable. Also, a productivity measurement based on the dollar amount generated per activity should allow for adjustment in inflation rates in order to compare productivity rates over various years.