Productivity Calculation

What is a Productivity Calculation?

Measuring and monitoring productivity is vital for any industry. It enables leaders to measure their company’s performance and discern areas that need improvement. However, there are multiple multifaceted approaches to calculating this metric.

While productivity is most often calculated by dividing the amount of work completed by the amount of input used, there are a variety of productivity calculations and methods that can be used to gain various levels of insights.

The 3 Basic Components of any Productivity Formula

While organizations can use an unlimited number of factors to deduce their productivity levels, most factors will comfortably fit into three categories.

• Input: This is the amount of time, employees, or resources used to generate a product or service.
• Output: This is the amount of goods or services generated by the organization. Output can be measured by the throughput, revenue, quality, and goals of the organization.
• Productivity: By dividing output by the input, organizations can effectively measure how efficient their productions are.

4 Methods to Track and Calculate Productivity

Calculating productivity can be an incredibly easy metric that relies on two simple factors.

• The amount of output
• The time it takes to create that output

However, while those two factors work in many scenarios, it’s important to consider the key metrics and goals that affect your company. Only then can you choose the productivity calculation that fits.

Let’s explore 4 productivity calculations and see when and where they are useful.

1. The Conventional Productivity Formula

Our first formula is no doubt the most common and simplest. It works for a wide range of industries and corporations and allows them to get a good sense of their productivity. To calculate Conventional Productivity, use the following equation.

Number of Goods / Total Workforce Hours = Standard Productivity

This calculation gives companies a good idea of how much they produced across their workforce hours. However, it isn’t precise. It does not consider any finer features or point to any specific causes of productivity loss or gain.

For this reason, the Conventional Formula should be used as an indicator of productivity, but not as an investigative tool. This calculation can give greater insights if performed frequently and at regular intervals, such as week to week. This way, you can track changes in productivity with other changes that may be occurring within your business.

Example 1: The Conventional Productivity Formula

Imagine you run a high-end custom toy car factory. You have 5 employees working 8 hours a day and your team produced 35 cars this week. To measure the productivity of your operation, you would use the below calculation.

35 / (5 x 8) = 0.87

This tells you that your business is producing 0.87 cars every workforce hour during the week. Then it's up to you to determine if that aligns with your target cycle time and takt time.

2. Revenue Per Employee

This method adds a monetary focus to the conventional productivity calculation above. Instead of dividing goods by workforce hours, this method uses the revenue generated (output) by the number of employees (input).

Total Company Revenue / Total Number of Employees = RpE Calculation

The higher the number, the more productive employees and their environment have been.

While this might imply a certain level of employee performance monitoring, the calculation is not geared toward that goal. Rather, it enables companies to see the average revenue generated by their employees. The downside is that this calculation does not take into account other expenses or the individual performance and hours of each employee. So while this method may not be a suitable financial metric, it will give an indication of trends in productivity over some time.

Again, this productivity calculation is most valuable when performed regularly and cross-referenced with other factors and changes.

Example 2: Revenue Per Employee

Let’s return to our toy car company. In the past 3 months, the company has generated $84,000 in revenue. This number then needs to be divided by the total number of employees.

$84,000 / 5 = 16,800

Using this number, companies can then look at the cost of their workforce, gauge the viability of their workforce model, and look for methods to enhance the revenue generated by each employee.

3. Overall Labor Effectiveness (OLE)

OLE focuses on three separate productivity factors to derive insight, Workforce Availability, Output Performance, and Output Quality.

1. Workforce Availability

This OLE measurement looks at the percentage of time the workforce is working compared to when they were scheduled to work. The equation is as follows.

(Productive Working Hours / Scheduled Work Hours) x 100 = Workforce Availability

In this case, unscheduled downtime (breakdowns, waiting, etc) is subtracted from the scheduled time to determine how long workers were contributing to the objectives of the business.

2. Output Performance

Output performance uses a goal or a labor standard as the basis for measuring the productivity of the workforce. Simply, it is the amount of goods generated divided by the expected quantities.

(Quantity Produced / Expected Quantity) x 100 = Output Performance

To use this calculation, you’ll need to know how many units can be produced within a given time frame and then set a goal based on the expected quantity. Once you have these two numbers, you can see if your workforce’s performance has been under or over the pre-established objective.

3. Output Quality

When measuring productivity, it is incredibly useful to keep an eye on quality. If total output is up but quality is down, then you could potentially be less productive than before. To determine quality output, use the below calculation.

(Quality Units / Total Units Produced) x 100 = Quality Output

This equation allows manufacturers to not lose sight of real productivity.

Example 3: Overall Labor Effectiveness (OLE)

As a custom toy car manufacturer, much of your process relies on the skills of your workforce. In this scenario, you want to measure the Overall Effectiveness of your employees across all three factors.

First, we’ll need to establish a few values.

• 5 employees worked 40-hour work weeks, adding up to 200 Scheduled Hours
• In this past week, workers experienced 30 minutes of unscheduled downtime each day, resulting in 188.5 Productive Work Hours.
• The production goal was 40 toy cars for the week
• 38 cars were assembled
• 30 cars met quality standards

Each OLE Equation is as follows:

• Workforce Availability = (188.5 Productive Work Hours / 200 Scheduled Hours ) x 100 = 94.25%
• Output Performance = ( 38 Cars Produced / 40 Cars Expected) x 100 = 95%
• Quality Output = (30 Quality Units / 38 Units Produced) x 100 = 78.94%

4. Productivity Software

Our final productivity calculation method is productivity software. These systems automatically gather various data to calculate productivity in the ways you need.

While the three previous methods can be good indicators of productivity, they lack specificity and provide nowhere near the level of granularity most operations need. On the other hand, productivity software delivers a high degree of accuracy and precision. Instead of taking the time to perform multiple calculations manually, organizations can capture key productivity data in the background while workers focus on value-added work.

• Accurate Employee Monitoring: Data is collected from each employee, enabling organizations to track employee, department, and workforce performance individually.

• Secure Data: All data is stored within one system, ensuring that no key metrics or data are lost.

• Direct Employee Feedback: Employees using the system can also provide further productivity insight based on their unique perspective.

• Objectives Over Time: With quantified benchmarks and specified time frames, organizations can track productivity changes over time and determine which actions, resources, and/or people are affecting it.

• Integration: Connect with ERP and BI software to create custom dashboards and KPIs.

Depending on the system used, the software also enables organizations to make direct contributions and performance boosts to the workforce. If using work instruction software, companies can digitally standardize their processes and actively guide workers through their tasks and responsibilities. This level of worker guidance helps employees maintain quality standards and hit objectives consistently.

Example 4: Productivity Software

Systems like our digital work instruction software monitor the performance, output, and actions of each employee. VKS, a worker-centric MES, focuses on the people creating value and measures productivity directly from the shop floor.

As soon as the employee is signed into their workstation, VKS automatically captures multiple layers of productivity and quality data. Additionally, integrated IoT tools, smart forms, and a powerful API enable organizations to capture and view key data as soon as it happens.