Skip to content
Sem 5 Prep
← OperationsProductivity

Formulas for this chapter

Productivity

Productivity = Output / Input

The parent of every measure in this chapter. Decide what counts as output (usable output only) and which inputs go in the denominator before you divide.

Output
Usable goods or services produced, in units or at standard price
Input
Labour, material, energy, capital, in units or in money

Labour productivity

Labour productivity = Quantity produced / Labour hours = Output at standard price / Wages paid

When the question names workers, hours or wages. Convert workers and hours into labour hours before dividing.

Labour hours
Number of workers x hours each worked
Wages paid
Total wage bill for the same period

Multifactor productivity

MFP = Output / (Labour + Material + Overhead)

When more than one input is priced. Overhead stated as a multiple applies to labour cost alone unless the question says otherwise.

Output
Units, or units x standard price if the answer is to be unitless
Overhead
Often given as a multiple of labour cost

Total factor productivity

TFP = Production at standard price --------------------------------------------- Labour + Materials + Overhead + k(capital invested)

When capital invested and a charge rate k are given. It is multifactor productivity with capital added.

k
Charge rate applied to capital, e.g. 0.10
Capital invested
Value of the capital employed in the period

Materials productivity

Materials productivity = Production output (Rs) --------------------------------------------- Raw materials + Packaging materials + Supplies

When the question isolates the material side, typically in a process industry.

Production output
Value of output in rupees
Supplies
Consumables that are not raw material or packaging

Productivity growth

Growth % = (Current productivity - Previous productivity) / Previous productivity x 100

Comparing two periods. The denominator is always the earlier period. Keep the sign.

Current
This period's productivity, on the same measure
Previous
Last period's productivity, on the same measure

Process yield

Process yield = Good output / Raw material input

Where there is scrap, and as the service-sector stand-in for productivity (cars rented / cars available).

Good output
Usable output only, scrap excluded
Raw material input
Quantity of material fed in, or capacity offered in a service
Step 4 of 26
The real wordsTheory

Efficiency, effectiveness, productivity

EfficiencyAn internal measure of performance: how well the company converts inputs into outputs. Are we doing things right?
EffectivenessAn external measure: the degree to which objectives are accomplished. Are we doing the right things?
ProductivityAn integration of both: the combined effect of resource utilisation (efficiency) and performance (effectiveness).

The professor's own warning, written on the slide: "Don't confuse productivity with efficiency."

← BackContinue →