With the huge amount of data available to us, it should be easier than ever to measure productivity. However, all the data in the world is no good if you don’t know how to use it. In this article, we’ll look at how to measure productivity for various aspects of your business.
Why Measuring Productivity Is Important
First of all, why does measuring productivity even matter?
Productivity is important to everyone in a company. It means employees are able to achieve more in less time and organizations see higher revenue using fewer resources.
When you measure productivity, you are able to see if you’re meeting targets and where you’re falling short. It also helps with scheduling projects, as you’ll have a better idea of how long each particular task will take by looking at past performance. Finally, you can use productivity metrics to see if all the members of a team are pulling their weight — or if a few individuals are doing all the work.
Types of Productivity Measures
Within an organization, there are four main types of productivity. Each has an impact on a different part of the supply chain when you’re delivering customers a product or service.
1. Capital Productivity
Capital productivity tells you the ratio of products or services to physical capital. Physical capital could be equipment, real estate, or anything else you need to produce your offerings. You improve physical capital through capital deepening, which usually leads to a higher output of goods or services.
2. Material Productivity
Another ratio is material productivity. This looks at the ratio of products or services to materials (also called natural resources). Material productivity is more useful in some industries than others. For instance, it has little value in an area like software development where few natural resources are necessary, but it plays a major role in the production of goods.
3. Labor Productivity
A type of productivity measure that most employers are interested in knowing is labor productivity. It tells you if you are efficiently transforming labor into a product or service.
4. Total Factor Productivity
Lastly, we have total factor productivity (TFP). This covers everything that capital, material, and labor productivity don’t take into account. This can include changes in knowledge and skills, use of organizational structures, returns to scale, and management tactics. These factors can have a great impact on productivity in some service industries.
How to Measure Workplace Productivity
As you’ve seen, there are numerous types of productivity. It’s logical, then, that there would be multiple ways of measuring productivity. For the clearest picture of workplace productivity, it’s worth using several.
Simple Productivity Output
The most basic way of measuring productivity is with the simple productivity output calculation. This is typically applied to units made or tasks completed, such as in a factory. It is less helpful for calculating productivity of more complex work.
Many employers want to know how to measure labor productivity. Simple productivity output is a good option to calculate this.
Pick your output figure. It could, for instance, be the value of units produced, tasks completed, or services generated in one week. Let’s say it’s $4,200.
Count how many hours of labor you put into reaching the output figure — this is your input figure. We’ll use 60 hours.
Divide output by input. The result will be a dollar amount that tells you productivity per hour of work. In our example, the calculation would be:
4,200/60 = 70
Therefore, labor productivity in this example is $70 per hour of work.
How about to measure employee productivity? You can use the same equation, but, instead of hours, you’ll need to use number of employees as the input. The calculation will be the amount spent to generate goods or services divided by the number of employees. The result is a dollar amount of productivity per employee.
In our example, let’s use three employees. The calculation is:
4,200/3 = 1,400
This means employee productivity per week is $1,400.
A 360-degree feedback strategy measures productivity subjectively. It is useful in situations where you have a team of employees who interact with each other constantly. It works best of all for small teams where all the members are aware of each other’s working styles.
Provide employees with training on how to give evaluations. The training should also cover the different roles in the company to ensure employees understand the job requirements of their coworkers.
Ask all of your employees to evaluate their coworkers. Employees will need to assess everyone on their team, including subordinates and managers. It’s useful to have a template where employees can provide information about how each individual met job requirements and contributed to help your company reach its long-term goals.
Use the feedback to create an assessment of each employee. By receiving evaluations from multiple people, you compensate for any personal feelings of an individual that may cloud judgement.
The above may be unhelpful if you have a remote team, especially if your employees have limited contact with each other. A simple yet effective solution to use is a time-tracking tool.
Pick the right time-tracking tool for your needs. You have many options to choose from, all of which are available for different sizes of teams and at different price points. Bear in mind that you want a tool that does more than just count time — you need to see how employees are using their time, such as through activity logs, screenshots, and idle time.
Compare productivity between employees with similar responsibilities. Use the average to give yourself a baseline of what to expect from workers carrying out the same tasks.
It’s also important to measure efficiency as part of productivity. This gives you a benchmark by which you can compare employees’ performance.
Determine what is the standard number of labor hours to gain a particular output. Let’s say it’s 60.
Calculate the actual amount of time worked. In this case, we’ll use 75.
Divide standard labor hours by actual amount of time worked and then multiply the result by 100. In our example, the calculation would be:
60/75 x 100 = 80
This means we have 80 percent efficiency.
You can use the same calculation to discover other useful productivity measurements.
Production downtime divided by total labor hours multiplied by 100 will tell you the percentage of idle time.
Expected hours required to produce an output divided by actual hours to produce the output multiplied by 100 gives you activity.
Actual hours worked divided by budgeted labor hours multiplied by 100 tells you labor capacity.
Examples of Productivity Measures in Practice
Now you know how to measure productivity, all that’s left is to determine how to apply the information.
1. Reaching Goals
Measuring productivity can help you determine if you’re on track to meet your goals. Of course, this requires having a clear understanding of what your goals are. Knowing what matters to your company will ensure you avoid measuring aspects of productivity that have little relevance to your business.
2. Meeting Short-Term Objectives
Measuring near-term targets is an excellent way to track your progress toward larger goals. For instance, you can track and compare different types of week-by-week productivity.
3. Make Adjustments to Your Operations
When you have regular productivity measures in place, you can make changes to your operation and check if the adjustment has a positive or negative effect. In fact, you can continue to make constant tweaks to optimize the results.
4. Provide Feedback
You want your employees to be productive and they want to do the best job possible. Provide feedback to individuals by turning productivity measurements into a rating scale. This will help you track growth and will tell your employees where they need to improve.
5. Promote Innovation
Too often, employers are worried about seeing a drop in productivity. As a result, they quash innovation — but this ultimately means that growth stagnates. By using productivity measures, you can encourage workers to try innovative ideas and test if these tactics work. In the case they’re successful, you can implement the ideas on a wider scale. If they’re unsuccessful, you have the option to adjust the tactic or just scrap it entirely.
Many factors that impact productivity at the workplace are out of your control, but there are plenty of aspects you do influence. For instance, whereas you may be unable to prevent competition and you have no sway over the wider economy, you can have a direct influence over your employees. By measuring productivity, you can see how your business reacts to factors both in and out of your control, which can guide your efforts in the future.