Analysing Operational Performance

• What are the different ways of measuring efficiency in business?

  • Labour productivity
  • Unit costs
  • Capacity
  • Capacity utilisation
• What is labour producitivty?

  The volume of output that is produced from each employee
• Labour productivity is a measure of business efficiency, especially for firms which have a labour intensive production process
• How do you calculate labour productivity?

  Labour productivity = (Output per period)/(Number of employees in that period)
• What are unit costs?

  The cost of producing one unit of output
• How do you calculate unit costs?

  Unit costs = (Total costs)/(Units of output)
• What is capacity?

  The maximum level of output or production that a business can produce in a given time period
• What is capacity utilisation?

  The percentage of a firm's capacity that is being reached
• How do you calculate capacity utilisation?

  Capacity utilisation = (Actual output)/(Maximum possible output) x 100
• What is spare capacity?

  Unused or available capacity beyond what is currently being utilised.
• What are the advantages of spare capacity?

  • Allows businesses to repond to change in demand
  • Allows the business to increase production without having to invest in additional resources
  • Allows businesses to take on new opportunities
• Spare capacity allows businesses to respond to a change in what more effectively?

  Demand
• If a business has spare capacity, the business doesn't have to invest in additional what to increase production?

  Resources
• If a business has spare capacity it allows a business to take on new opportunities that it may spot
• What are the disadvantages of spare capacity?

  • Higher proportion of fixed costs per unit
  • Higher unit costs lead to lower profits
  • Employees may become bored or demoralised
• If a business has a large spare capacity it has a higher proportion of what per unit?

  Fixed costs per unit
• If a business doesn't work at full capacity the business has higher what costs which leads to what?

  The business has higher unit costs which leads to lower profits
• If a business has a large spare capacity the employees may become what?

  Bored or demoralised