How to Calculate the Productivity Of An Organization?

Productivity is a measure of the profit-making or money-making economic performances of the laborers and staff of an organization.

It is generally measured by comparing the units of goods and services produced or supplied to the number of units of inputs used and time spent while working on it.

It is the measurement of the effectiveness of an organization that tells us about its labor efficiency and management capabilities and shows good leadership and entrepreneurial skills.

When the production and management teams are aware of their production capabilities, it becomes easy for the management team to make the required arrangements.

So the calculation of production is an important thing. And that’s why organizations appoint professionals and experts to do this for their employees and departments.

Here we will learn how you can calculate the productivity efficiency of an organization.

Process of Calculate the Productivity

The word “Productivity” means and is used as the performance measuring unit of an entity or an organization. It shows an organization’s hard work, willpower, and total employee strength. They can fulfill a task within a given period.

And sometimes, this ability is shown in monetary terms when an organization has to calculate its productivity in terms of money, i.e., based on total revenue or sales generated by them.

The formula for calculating productivity that helps analyze an organization’s workflow and know and analyze the working capability of an organization’s employees or laborers is given below.

The process of calculating an organization’s productivity is quite simple and easy –
Productivity of an organization = (Total units produced / Total inputs used)

Here are two examples to explain the above formula to the users –

Example 1

Yohana is an Inspection Officer. She visited Q.P.R. Limited’s warehouse, which produces Kids’ sippers, to inspect sippers. She inspected 1000 units of sippers in five hours. The company’s total Output is 1000 units, and the time consumed in their Input. Here that is 8 hours a day.

With the help of the given pieces of information, Yojana can calculate their productivity using the formula above, i.e., 1000 kids’ sippers / 8 hours = 125 sippers per hour.

Here you can see the company’s productivity is 125 sippers per hour. Now the company can use this data to determine its future outputs when an assumed number of hours is given and vice versa.

Example 2

Let us examine an example of a production manager with the help of some assumptions. Let’s say a factory has produced 198720 units within a month.

The organization required 20 laborers who worked 27 days (4 days being Sunday was a holiday) and 8 hours a day. So with the help of the given details, we can calculate the employees’ productivity.

The productivity of the factory is, Input = No. of laborers * No. of working days a month * No. Of hours a day.

So, Input = 20 * 27 * 8 = 4,320 hours.
And, Productivity = Output / Input.
So, productivity = 198,720 units / 4,320 hours = 46 units per hour.

How to calculate productivity in an Excel spreadsheet?

Productivity is the computed result of the Output produced divided by the Input used. The output units indicate the number of tasks or units laborers or professionals produce.

And Input usually denotes the number of hours consumed during the process.

It is generally recommended to use an excel spreadsheet to maintain and record the data of inputs and outputs of an organization.

Maintaining records in an excel sheet is relatively easy and very technical. It is simple and easier than the process of maintaining records physically.

The user needs to follow these steps to maintain records in an excel sheet –

  • Step 1: Select the first blank cell and name it “Input units.” It is the first step of maintaining records. Cells are the boxes that form the grid on an excel sheet. The user needs to select the first cell and name it.

  • Step 2 – Select the second blank cell and name it “Input units.” It is the second step of maintaining records. The user needs to select the second cell on the horizontal right side of the first cell used or, say, the first cell of the second row and name it.

  • Step 3 – Select the third blank cell and name it “Answer or Result.” It is the third step of maintaining records. The user needs to select the third cell on the horizontal right side of the second cell used or, say, the first cell of the third row and name it.

  • Step 4 – Now, the user needs to enter the details column-wise. The fourth step is where the user enters details column-wise under the “input and output units” rows.

  • Step 5 – Enter the formula under the “Answer or Results” cell (column-wise). Under the third row column-wise, enter the formula for calculation and get an answer. The formula is (= Output units cell / Input units cell). For example, we can assume C2 = A2 / B2 and then press Enter key. Similarly, get the answer for the rest of the cells and details.

Why is it necessary to calculate the productivity of an organization?

When an organization is aware of its production strength during a fixed period, the outcome of this analysis makes planning strategies for future vision, mission, and goals easy. It now knows its strength and weakness and would work accordingly.

It also helps in adapting and adjusting to new changes that the organization needs to undertake for a greater production process that also helps in saving money while generating higher sales than before.

The productivity of an organization also depends upon a few external factors like variances in the economy, tough competitors, limited resources, and more. The organization cannot control these factors.

Therefore, being aware of its productivity helps the organization understand and enhance its current labor force and become better.

The concept of productivity is very simple, easy, and interesting.
We can also say that it is a fun learning process where a user learns about the whole process of calculating the productivity of an organization while handling and playing with mathematical figures.

Methods of productivity calculation

Every organization has its way of calculating its productivity level as productivity is a professional output, so it differs in every organization. An organization can use some ways in an alternative way. These are –

The Feedback Method

A business can determine its productivity by feedback from its users, customers, and professional experts. This method is a process in which the organization’s head or an employer takes a survey through his expert supervisors, colleagues, and their junior or lower-ranking employees.

These surveys are conducted in writing, orally, or by reviewing each other’s work. After collecting the survey results, they are evaluated and analyzed based on benchmarks or samples. And the final result collected describes an organization’s productivity.

Total Revenue Method

Every organization can’t conduct surveys. So, these organization can evaluate their productivity based on their total revenue. It has a formula for calculating productivity, i.e.,
Productivity = (Total Revenue or Sales / Total hours).

For example, two workers work 8 hours a day in a shop. So by calculating, we can say that by the end of the day, the organization has 16 hours (2 workers * 8 hours a day = 16 hours of work a day) of production in it. And 16 hours * 5 days a week = 80 hours a week.

Suppose the total sales of the shop were 4000 rupees. So with the help of the formula, it can be said that 4000 rupees / 80 hours = 50 rupees per hour.

What other factors affect the process of calculating productivity?

Productivity can be estimated or calculated by simple hand calculations, calculators, and more. But some factors determine and affect the process of calculating productivity. These are –

Industry

Sometimes, the output units’ value may indicate the monetary value of that time. Generally, it works in industrial areas where the main focus is on the sales and marketing of goods and where the position of an organization directly relates to its sales. In the manufacturing industries, the output details are generally more accurate.

Whereas the service industries usually face some problems estimating the output production as the outputs are intangible. Here the output unit is taken as per the number of tasks accomplished and finished properly, in place of estimating the units produced.

So it is safe to say that value of Output produced sometimes might depend upon the type of industry.

Associate targets and Yardstick

Sometimes, organizations make a benchmark or a yardstick depending upon the other industrial standards. Benchmarks are created so an organization can see and analyze its position in the market and work on its productivity.

Some industries have a common benchmark, let us say, finishing off a daily basis target within 8 hours. But on the other hand, determining the benchmark of some industries might not be this simple. For example, in a service-based industry, estimating its benchmark might not be a simple task.

So in these cases, the organizations look through their old accomplishments and targets achieved. And then, with the help of old data, they analyze their current position in the market.

Efficiency and Quality

The productivity of an organization is the result of the Output produced during a period. It gives the details of the units produced but does not give details about the quality of the units produced.

A strong organization can produce good quality units within the stipulated time. So, to get the actual production efficiency of an organization, it is recommended to calculate its productivity and the quality of goods produced.

With the help of these three factors, an organization can calculate its actual production capacity.

5 Best Examples/ Case Studies of Productivity Calculation

Let us go through some examples of productivity calculation with the help of some examples.

Example 1

Let us examine an example of a production manager with the help of some assumptions.

Let’s say a factory has produced 158,400 units within a quarter. The organization required 20 laborers who worked 22 days a month and 8 hours a day. So with the help of the given details, we can calculate the employees’ productivity.

The productivity of the factory is,
Input = No. of laborers * No. of months * No. of working days a month * No. Of hours a day.
So, Input = 20 * 3 * 22 * 8 = 10,560 hours.
And, Productivity = Output / Input.
So, productivity = 158,400 units / 10,560 hours = 15 units per hour.

Example 2

Let us examine an example of an organization’s senior management’s process of calculating its productivity with the help of some assumptions.

During the year 2022, an organization generated revenue of rupees 2.10 crore. It started with a group of 200 employees, but by the end of the year, it had 220 employees. The organization wants its senior management to calculate its revenue per employee with the help of the given details.

So to calculate the organization’s productivity, it is important to have an input, i.e., the average number of employees in the organization over the year.
Average no. of employees = (Opening no. of employees + Closing no. of employees) / 2
So, Average (Input) = (200+220) / 2 = 210 employees.

Productivity = Total Sales (Output) / Average no. of employees (Input)
So, productivity = 2.10 crore / 210 employees = Rupees 1 lakh per employee.

Example 3

Let us examine an example and show the process of analyzing productivity in a corporate sector with the help of some assumptions.

Care Ltd. is a financial service-providing company. It has four analysts: John, Celina, David, and Harry.
They decide and set up guidelines according to which the no. of months was to be taken as Input and no. of tasks done is to be taken as Output.

The necessary details are as follows –

No. Of months worked (Input):

  • John – 5 months
  • Celina – 4 months
  • David – 8 months
  • Harry – 3 months.

No. of tasks done (Output):

  • John – 35
  • Celina – 24
  • David – 64
  • Harry – 12

Productivity = Output / Input

So, productivity will be =

  • John’s productivity = 35 / 5 = 7 tasks per month.
  • Celina’s productivity = 24 / 4 = 6 tasks per month.
  • David’s productivity = 64 / 8 = 8 tasks per month.
  • Harry’s productivity = 12 / 3 = 4 tasks per month.

Therefore, from the above analysis, we can say that David is the most productive analyst of Care Ltd as he solved 8 tasks in a month on average.

Example 4

Let us examine an example of an organization’s management’s process of calculating its productivity with the help of some assumptions.

During the year 2018, the organization generated revenue of 4.20 crore rupees. It started with a group of 200 employees, but by the end of the year, it had 220 employees. The organization wants its senior management to calculate its revenue per employee with the help of the given details.

So to calculate the organization’s productivity, it is important to have an input, i.e., the average number of employees in the organization over the year.

Average no. of employees = (Opening no. of employees + Closing no. of employees) / 2
So, Average (Input) = (200+220) / 2 = 210 employees.

Productivity = Total Sales (Output) / Average no. of employees (Input)

So, productivity = 4.20 crore / 210 employees = Rupees 2 lakh per employee.

Example 5

Let us examine an example and show the process of analyzing productivity in a service sector with the help of some assumptions.

M.J.P. Ltd. is a health insurance-making / providing company. The organization has 5 insurance-making agents: Eric, Reya, Chad, Harry, and Aaron.

They decide and set up guidelines according to which the no. of months worked was to be taken as Input and no. of insurance made is to be taken as Output.

The necessary details are as follows –

No. of months worked (Input):

  • Eric – 6 months
  • Reya – 6 months
  • Chad – 6 months
  • Harry – 6 months
  • Aaron – 6 months.

No. of insurance made (Output):

  • Eric – 36
  • Reya – 24
  • Chad – 66
  • Harry – 12
  • Aaron – 60

And as you know, Productivity = Output / Input

So, productivity will be:

  • Eric’s productivity = 36 / 6 = 6 insurance per month.
  • Reya’s productivity = 24 / 6 = 4 insurance per month.
  • Chad’s productivity = 66 / 6 = 11 insurance per month.
  • Harry’s productivity = 12 / 6 = 2 insurance per month.
  • Aaron’s productivity = 60 / 6 = 10 insurance per month.

Therefore, from the above analysis, we can say that Chad is the most productive Insurance agent of M.J.P. Ltd as he had made 11 insurances in a month on average.

Conclusion

The productivity of an organization is the measurement of the effectiveness of an organization that tells us about its labor efficiency and management capabilities and shows good leadership and entrepreneurial skills of the managing department.

When an organization is aware of its production strength during a fixed period, it becomes easy for the executive departments to make strategies to increase its outcome. It now knows its strength and weakness and would work accordingly.

It also helps in adapting and adjusting to new changes that the organization needs to undertake for a greater production process that also helps in saving money while generating higher sales than before.

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