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.
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.
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.
