3.4.2 Analysing performance

• Unit cost = total costs/total output
• The most efficient businesses is the one with the lowest unit cost
• What is the advantage of having a low unit cost?

  A low unit cost means the money in the business can be spent elsewhere other than production

  They can put prices lower than competitors (penetration pricing), charge similar prices to competitors and make more profit
• Economies of scale arise when unit cost falls as output increases
• What is labour productivity concerned with?

  Labour productivity is concerned with the amount of output obtained from each employee.
• Why is measuring and monitoring labour productivity important?

  It is important because labour costs are usually a significant part of total costs.
• How is business efficiency and profitability related to labour productivity?

  Business efficiency and profitability are closely linked to the productive use of labour.
• What must a business do to remain competitive regarding labour productivity?

  A business needs to keep its unit costs down to remain competitive.
• What are some factors that influence how productive the workforce is?

  Factors include the extent and quality of fixed assets, skills and motivation of the workforce, methods of production organization, and external factors like supplier reliability.
• What are the main approaches a business can take to improve its labour productivity?


  • Measure performance and set targets
  • Streamline production processes
  • Invest in capital equipment (automation + computerisation)
  • Invest in employee training
  • Make the workplace conducive to productive effort
• What is often claimed about measuring performance in relation to productivity?

  It is often claimed that "what gets measured, gets done!"
• How can a business streamline production processes to improve labour productivity?

  By identifying and eliminating inefficiencies in the production workflow.
• What does investing in capital equipment entail for improving labour productivity?


  It entails automation and computerisation of production processes.
• Why is employee training important for improving labour productivity?


  Employee training enhances skills and motivation, leading to better performance.
• What does making the workplace conducive to productive effort involve?


  It involves creating an environment that supports and encourages productivity among employees.