How To Calculate Productivity
This video will show you how to calculate the productivity of your business which will be helpful in determining points for improvement.
Hi, my name is Grant Hobson. I work as a finance analyst, and today I'm going to talk you through some business maths, calculations and ratios. How to calculate productivity? When we're calculating the productivity, we usually do it in terms of the output per labor hour and it's deemed, a bad way of calculating is to use the hours worked as opposed to the actual number of people that you've got.
It's a useful calculation for companies to analyze the performance of different teams on different production lines, different sales personnel and different sales teams to see actually how many sales are generating and how many units are being produced with the time that's being put into it. We're going to run through a calculation now just to demonstrate how we'd work that and what you would then take from the outcome of the calculation. So in terms of calculating the productivity, it's three simple steps to follow.
So first, that is determine the total worker output, this is in either units or in monetary value, and for the calculation, I'm going to use units so that will be, for the first example, it's going to be bicycle production, so the units are the number of bikes produced in a month. Step two would then be to determine the total number of man hours associated with our production. So, it's not only the labor that is on the production line who is compiling the bikes, it's also of management overseeing it and any other people in the company associated to the bike production are included there in total man hours.
And the final step of the calculation is to divide output by the number of man hours. To our example one, we're going to take bicycle production. I'm going to say that I've got 20 employees and each report 8 hours to this production, so it's simply 8 times 20, 160 hours and then our monthly output.
So for this bicycle production, I'm going to say that I made 30,000 bikes which gives us a productivity of 9.3 units per hour, which is simply the monthly output divided by the total man hours. So, with the man hours, it would be the number of employees and the number of their man hours per employee.
So, what a company might want to do is look at this on a monthly basis, so it would seem if the bicycle production, if the units per hour increased month per month or whether it's decreased, so we're looking at the efficiency if they are on their lines whereby the management on their lines is doing the job they should be doing and whether the personnel on the line are up to the standard that we need to get through the units that we want to produce in a month. A second example, we're going take a simple where we should compare in one team versus another and this is where a team's car washing during a weekend period. So, I'm going to say that team A sought man hours was 80 hours, total cars washed to 135, and this gives an output of 1.
69 per labor hour. Team B alternatively is the bigger team and they spent 130 man hours and they washed 190 cars. For a lot of cars, it was actually only 1.
46 per labor hour which was a poor performance than team A. So as a manager for both of these teams, you might want to compare the output of one with the output of another and look whether it's the way they're working or the people in the team as to why the performance is different. Companies will look constantly to increase their productivity, and their savings and efficiency on the lines in the way they work in, and most of that combined increase automation of the production line or computerization which minimizes the tax that are done by and manual labor, so just a simple calculation but this can help them look for the weak points to where improvements can be made.