# Concepts of Productivity, Modes of calculating productivity

02/02/2021

Productivity is an overall measure of the ability to produce a good or service. More specifically, productivity is the measure of how specified resources are managed to accomplish timely objectives as stated in terms of quantity and quality. Productivity may also be defined as an index that measures output (goods and services) relative to the input (labor, materials, energy, etc., used to produce the output). As such, it can be expressed as:

Hence, there are two major ways to increase productivity: increase the numerator (output) or decrease the denominator (input). Of course, a similar effect would be seen if both input and output increased, but output increased faster than input; or if input and output decreased, but input decreased faster than output.

Organizations have many options for use of this formula, labor productivity, machine productivity, capital productivity, energy productivity, and so on. A productivity ratio may be computed for a single operation, a department, a facility, an organization, or even an entire country.

Productivity is an objective concept. As an objective concept it can be measured, ideally against a universal standard. As such, organizations can monitor productivity for strategic reasons such as corporate planning, organization improvement, or comparison to competitors. It can also be used for tactical reasons such as project control or controlling performance to budget.

Productivity is also a scientific concept, and hence can be logically defined and empirically observed. It can also be measured in quantitative terms, which qualifies it as a variable. Therefore, it can be defined and measured in absolute or relative terms. However, an absolute definition of productivity is not very useful; it is much more useful as a concept dealing with relative productivity or as a productivity factor.

Productivity is useful as a relative measure of actual output of production compared to the actual input of resources, measured across time or against common entities. As output increases for a level of input, or as the amount of input decreases for a constant level of output, an increase in productivity occurs. Therefore, a “productivity measure” describes how well the resources of an organization are being used to produce input.

Productivity is often confused with efficiency. Efficiency is generally seen as the ratio of the time needed to perform a task to some predetermined standard time. However, doing unnecessary work efficiently is not exactly being productive. It would be more correct to interpret productivity as a measure of effectiveness (doing the right thing efficiently), which is outcome-oriented rather than output-oriented.

Productivity is usually expressed in one of three forms: partial factor productivity, multifactor productivity, and total productivity.

Productivity refers to the physical relationship between the quantity produced (output) and the quantity of resources used in the course of production (input).

“It is the ratio between the output of goods and services and the input of resources consumed in the process of production.”

Productivity is the ratio between output of wealth and input of resources used in production processes.

Productivity = Measure of output / Measure of Input

Total Productivity:

Pt = Qt / (L+C+R+M)

where Pt: Total productivity

L = Labour input

C = Capital input

R = Raw material and purchased parts input

M = Other miscellaneous goods and services input factors

Qt = Total output

Productivity can be increased by:

• Generating more outputs from same level of inputs.
• Producing same level of outputs with reduced level of inputs.
• A combination of both.

#### Importance of Productivity:

The concept of productivity is of great significance for undeveloped and developing countries. In both the cases there are limited resources that should be used to get the maximum output i.e. there should be tendency to perform a job by cheaper, safer and quicker ways.

The aim should be optimum use of resource so as to provide maximum satisfaction with minimum efforts and expenditure. Productivity analysis and measures indicate the stages and situations where improvement in the working of inputs is possible to increase the output.

The productivity indicators can be used for different purposes viz. comparison of performances for various organizations, contribution of different input factors, bargaining with trade unions etc.

Factors Affecting:

Productivity is the outcome of several factors. These factors are so interrelated that it is difficult to identify the effect of any one factor on productivity.

These factors may broadly be divided as follows:

1. Human:

Human nature and human behaviour are the most significant determinants of productivity.

Human factors may further be classified into two categories as given below:

(a) Ability to work: Productivity of an organization depends upon the competence and calibre of its people both workers and managers. Ability to work is governed by education, training, experience, aptitude, etc. of the employees.

(b) Willingness to work: Motivation and morale of people is the second important group of human factors that determine productivity. Wage incentive schemes, labour participation in management, communication system, informal group relations, promotion policy, union management relations, quality of leadership, etc., are the main factors governing employees’ willingness to work. Working conditions like working hours, sanitation, ventilation, schools, clubs, libraries, subsidized canteen, company transport, etc., also influence the motivation and morale of employees.

1. Technological:

Technological factors exercise significant influence on the level of productivity.

(a) Size and capacity of plant

(b) Product design and standardization

(c) Timely supply of materials and fuel

(d) Rationalization and automation measures

(e) Repairs and maintenance

(f) Production planning and control

(g) Plant layout and location

(h) Materials handling system

(i) Inspection and quality control

(j) Machinery and equipment used

(k) Research and development

(l) Inventory control

(m) Reduction and utilization of waste and scrap, etc.

1. Managerial:

The competence and attitudes of managers have an important bearing on productivity. In many organizations, productivity is low despite latest technology and trained manpower. This is due to inefficient and indifferent management. Competent and dedicated managers can obtain extraordinary results from ordinary people.

Job performance of employees depends on their ability and willingness to work. Management is the catalyst to create both. Advanced technology requires knowledge workers who in turn work productively under professionally qualified managers. No ideology can win a greater output with less effort. It is only through sound management that optimum utilization of human and technical resources can be secured.

1. Natural:

Natural factors such as physical, geological, geographical and climatic conditions exert considerable influence on productivity, particularly in extractive industries. For example, productivity of labour in extreme climates (too cold or too hot) tends to be comparatively low. Natural resources like water, fuel and minerals influence productivity.

1. Sociological:

Social customs, traditions and institutions influence attitudes towards work and job. For instance, bias on the basis of caste, religion, etc., inhibited the growth of modern industry in some countries. The joint family system affected incentive to work hard in India. Close ties with land and native place hampered stability and discipline among industrial labour.

1. Political:

Law and order, stability of Government, harmony between States, etc. are essential for high productivity in industries. Taxation policies of the Government influence willingness to work, capital formation, modernization and expansion of plants, etc. Industrial policy affects the size, and capacity of plants. Tariff policies influence competition. Elimination of sick and inefficient units helps to improve productivity.

1. Economic:

Size of the market, banking and credit facilities, transport and communication systems, etc. are important factors influencing productivity.

Productivity is an economics term which refers to the ratio of product to what is required to produce the product. Productivity is outcome of several interrelated factors. All the factors which are related to input and output components of a production process are likely to affect productivity.

So, there are many factors which can influence productivity; such as internal and external. Knowing the internal and external factors that affect productivity of an Industrial organization; give industrial engineers; the intelligence, they needs to sort out the low performance of resources and make strategic plans for the future.

The best thing about internal factors is that you can control many of them. External factors are all those things that are beyond your control. To deal with all these factors we need different people and variety of techniques and methods.