Measuring productivity

I’ve written extensively about doing more with less – productivity.  Productivity is a very powerful tool, and it can allow youto dramatically increase your revenues and profits, without spending much more on assets or expenses.

How can you measure productivity?

Berlin SmartCar

Berlin SmartCar by Lori Greig, on Flickr

First, define your process.   What is it that you want to do more productively?

Second, define your inputs.  What does your process need to work?  Certain physical goods?  Hours?  Focus on an input that is constrained, i.e. that’s expensive or not easy to increase.

Third, define your outputs.  What does your process produce?  This should be a primary goal of your business.  It might be revenues, or the specific items that you make and sell.

Finally divide your outputs by your inputs.

For example, suppose I want to measure the productivity of my car.   The process is driving.  The input is gasoline (measured in gallons).  The output is miles driven.  My measure will be miles per gallon.

By continuously monitoring my mileage, I can measure how productive my driving is.

You can develop similar measures for other processes.  For example, for a website, “hits” might be inputs, and “sales” might be outputs.  Measure sales per hit.

For a restaurant, “tables” might be inputs and “meals served” might be outputs.  Measure meals served per table.

In baseball, “player salaries” might be inputs and “games won” might be outputs.  Measure “player salaries” per “games won,” to determine how much each winning game cost.

Once you can measure productivity, then you can think about how to improve it.  With a car, you might discover that highway mileage is more productive than city mileage.  You use less gas when you take the highway than when driving on side streets.  With a website, think about how you can squeeze more sales (or conversions) out of your hits.  With a restaurant, think about how you can serve more meals at your fixed number of tables.

About Mark P. Holtzman

Chair of Accounting Department at Seton Hall University. PhD from The University of Texas at Austin. Worked at Deloitte's New York Office. BSBA from Hofstra University.


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