There are many different ways to measure productivity in a business, the most basic of which is the productivity formula. The productivity formula is most commonly used to measure the efficiency of a business’ production process by calculating the amount of output related to the labor that went into it. It can also be used to calculate productivity on a larger scale, such as the economic production of an entire nation.
What Is the Productivity Formula?
The productivity formula is simple: Productivity = Output / Input
Another way to look at it is: Productivity = Value of Work / Hours Worked
Output can be measured in units, whereas value of work is typically measured in dollars. Input is most commonly measured in number of hours worked. However, different industries have different productivity benchmarks and use the formula in various ways.
Productivity Formula Examples
Example 1: A Factory
Say that a factory produces $1,000,000 worth of televisions in a month, with 800 hours worked in total by all of its employees.
The productivity formula would look like this: Productivity = 1,000,000 / 800 = $1,250 / hour. This means that the factory is producing $1,250 worth of televisions an hour.
This is not to be confused with profit, because the productivity value does not take into account operating costs, wages for employees, and other overhead of the factory.
Example 2: A Country
The productivity formula can also be used to calculate the productivity of a country. Say that the GDP per worker of a country is $70,000 and the number of hours the average employee works in a year is 2080.
The productivity formula would look like this: Productivity = 70,000 / 2080 = $33.65 / hour. This means that the productivity of the average worker in that country is $33.65 an hour.
In other words, the average worker in the country produces $33.65 worth of goods and services an hour. The higher this number is, the higher the value of the goods and services that the country produces are.
Calculating Increases in Productivity
Businesses can use the productivity formula to help measure increases in productivity after implementing changes. To do this, there are 5 steps you need to follow:
- Calculate current productivity (Productivity 1 = Output / Input)
- Improve areas of productivity
- Calculate productivity after improvements (Productivity 2 = New Output / New Input)
- Subtract the old productivity from the new productivity (Productivity 2 - Productivity 1 = Productivity Improvement)
- Divide the productivity improvement rate by the old productivity rate and multiply by 100 (Productivity Improvement / Productivity 1 x 100 = % Increase)
What you end up with after doing this series of calculations is the percentage of productivity increase. Using the productivity formula to calculate increases in productivity is very useful when you want to measure the effectiveness of changes you implement to production processes or business practices.
Examples of ways businesses can improve areas of productivity include making jobs easier for employees, improving working conditions, using new technologies, automating workflows, and offering incentives like bonuses for improved performance. When you use the productivity formula to calculate productivity increases after implementing changes such as these, it can help you make continuous improvements to your business.