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Lecture 2 (Quantitative Measurement of Productivity)

The document discusses different measures of productivity including partial, value added, aggregation, and total productivity measures. It provides examples of partial measures like labor, material, and energy productivity. Aggregation measures assign weightages to input factors. Total productivity considers all factors of production. Index methods are used to measure productivity changes over time by setting a base period.

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Hafiz Abdulrehman
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68 views23 pages

Lecture 2 (Quantitative Measurement of Productivity)

The document discusses different measures of productivity including partial, value added, aggregation, and total productivity measures. It provides examples of partial measures like labor, material, and energy productivity. Aggregation measures assign weightages to input factors. Total productivity considers all factors of production. Index methods are used to measure productivity changes over time by setting a base period.

Uploaded by

Hafiz Abdulrehman
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Productivity

It is the ratio of Output to input


Productivity increases with following situations:
Benefits Of Higher Productivity

1. Product prices gets reduced to provide benefits to


costumers.
2. Higher dividends is paid to the investors.
3. Employees get better benefits and wages.
Human resource is concerned with managerial and
productive skills along with the motivation, initiative
and creativity of men which transform the other
resources into valuable products to the organization.
Classification of Productivity

Major definitions of productivity include profitability,


efficiency, effective, value, quality, innovation and
quality of work life.
Productivity measurement can be classified into four
types:
1. Partial Productivity measures
2. Value added productivity measure
3. Aggregation measure
4. Total productivity measures
1. Partial Productivity Measures

a) Labor Productivity:
It is the measure of the effectiveness of the work
force. Productivity can be effective when combined
with a ratio of work force to the total no. of employers
of the organization.
Designing most suitable tooling, jigs and fixtures to
enhance labor productivity. Worker training,
motivation and activity based wage payment and
incentive plans can also increase labor productivity
b)   Material Productivity:

More products per unit of raw material feed
Material productivity =
c) Energy Production:
Energy productivity is restricted by the technology
being used. Poor maintenance may result in decrease
in energy productivity.
Energy productivity =
d) Capital Productivity:
It is the ratio of profit/capital invested or
Profit/Fixed cost or Turnover/capital invested.
2. Value Added Productivity Measures

 Value added is the difference between the income


from sales and the cost of the factors including
material, supplies, energy and utilities.
Value added Labor productivity
3. Aggregation Measure of Productivity

 Various input factors are assigned a weightage and the total


weightage of all factor ratios is 1.0 .For example
4. Total Productivity Measure

 All factors of production labor, capital, material and


energy are used in total factor productivity measures.
It is the relationship between output and the sum of
total inputs.
Productivity =
Measurement of productivity by index
method

Q u a n t i t i e s b a s e d o n q u a n  t i t i e s m e a s u r e o f
productivity.

The labor productivity is a measure of output per


man considered in a specified time unit.

productivity =
2007 Base Index 2008 Base period Index
period Amount Amount
1. Output 50,000 100 81,900 163.8
2. Labor 5,000 100 6,500 130.0
3.Wages 75,000 100 110,500 147.3
4. Output/Hr 10 100 12.60 126.0
5.Wages Rs/Hr 15.00 100 17.00 113.3
6.Labour costs 1.50 100 1.349 89.27

This example takes 2007 as a base period to compare the


productivity of the subsequent years. It noted that
1. Total production increased more than the increase in
employment.
2. Although the wages/Hr has been increased by 13.3% the
labor cost/unit has reduced by 100-89.27 = 10.73%
Partial productivity measure

Partial productivity measure serve as an evaluation of any


improvement regarding the use of specific resource.
Energy intensive industry like steel rerolling and cement
industries, while implementing any energy conservation
would need to measure energy productivity. Measure can
be output units per unit of energy used.
A foundry used 6800 tons of coke and produced 27800
tons of casting in 2004. As a result of energy productivity
improvement plan, the coke consumption was 7150 tons to
produce 38500 tons of casting in 2006.
Partial productivity measure

Energy productivity before improvement=


27800/6800= 4.09 tons of castings/ton of coke.
Energy productivity after improvement=
38500/7150= 5.38 tons of castings/ton of coke.
Productivity improvement=(5.38-
4.09)/4.09*100=28%
Similarly labour intensive industries will be more
interested in measuring the labour productivity.
Craig and Harris

The model emphasis on total productivity measure. The


limitations of partial productivity measures are elaborated
by a simple example.
If a company’s labour productivity is increased by
increasing the quality of raw material, whose extra cost does
not offset the savings from reduced man-hours of labour,
then it could be disastrous for the management to award a
wage hike to its labour based on improved labour
productivity, when, in fact, there is no net gain at all. Craig
and Harris rightly caution that partial productivity
measures should not be used as indiscriminately as they
usually are
Craig and Harris

The output in this model is the value of units


produced, plus dividends from securities and interests
from bonds etc

Total productive measure= Ot/(L+C+R+Q)


L= Cost of labour input
C= Cost of capital input
R= Cost of raw material and purchased parts
Q= Cost of miscellaneous goods and services
 Ot= Total output
Comments on CRAIG-HARRIS model
Comments on CRAIG-HARRIS model
Total productive model
Comments on CRAIG-HARRIS model
Procedure for implementing total productive model
Basic total productive model for a firm
Basic total productive model for a firm
Basic total productive model for a firm

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