Showing posts from May, 2012

“How Are We Doing?” Efficiency, Utilization, and Productivity

In business, knowing how we are performing in relation to our competition is vital. Internally we want to know if we are using resources effectively and getting the most out of what we have. Efficiency and Productivity are two calculations that are fundamental to the success of any organization. While the calculations are simple, choosing what measures to use and collecting the necessary data requires a thorough understanding of your industry.

To calculate Efficiency you will have to first decide what to use as a base for comparison. Does your company already have a “target” of some kind? Like total units produced? If so then you can compare everything to that. Once you have that, there are a couple of basic formulas that can be used:

Efficiency = Actual Output/Effective Capacity X 100%
Utilization = Actual Output/Design Capacity X 100%

Design Capacity is the maximum output achieved under ideal conditions. Effective Capacity is always less than Design Capacity because of factors su…