How to Calculate Productivity: An HR’s Guide
Organizations today are facing the question of how to accurately measure productivity, particularly as the world becomes more and more remote. Furthermore, the question of measuring productivity has moved beyond measuring a simple ‘output.’ It is nuanced, taking into account external and internal factors and the organization’s needs at a particular given point. Organizations and employees have always searched for ways to generate the greatest amount of output in the shortest space of time. And to demonstrate this, you have to be able to measure it.
That’s the real question – how to accurately measure productivity and show the value of employees’ efforts at work. Let’s have a look at why and how to calculate productivity.
Why calculate productivity in the workplace?
Productivity is a metric that helps you understand when and how your business needs to adjust to achieve better results. Let’s take a deeper dive into some other reasons why calculating productivity is essential:
- Workforce optimization – Calculating productivity helps an organization understand their current workforce and make changes along the way in the face of changes. It provides the data to make tweaks to employee work schedules and organizational structure, reduce operational costs, and optimize employee performance.
- Creating financial impact – Calculating productivity is equivalent to keeping a finger on your organization’s pulse. In the changing market, you’re able to adjust employee processes or workflow to optimize for performance. As a result, you’re always able to ensure an organization is in the best position to increase profit while maintaining the same level of effort.
- Tracking changes to productivity – You’re able to see if anything changed and take action where necessary. Furthermore, you’re also able to be aware of any signals that could lead to irrecoverable damage.
- Managing your business – A firm understanding of your organization’s productivity levels allows for better decision-making. You’re able to manage the front line of your business and customer expectations. It also identifies areas of concern in operations and whether or not you need to expand your team or implement a new operating model.
How to calculate productivity
There is a simple general formula to calculate productivity:
Productivity = Output / Input
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But how do you put this into practice?
Let’s take, for example, an organization that produces laptops. In one month, they make over 200,000 laptops, with 40 employees, working 18 days and 9 hours per day over a period of 6 months.
|No. of laptops||200,000|
|No. of labor hours per day||9|
|No. of days worked in a month||18|
|Number of employees||40|
To work out your total input, do the following calculation:
Input = 40 (# of employees) x 9 (# of hours of work per day) x 6 (# of months) x 18 (# of days worked in a month).
Productivity = 200,000 / 38,880 = 5.14
That means for every hour, 5.14 of output was produced. In other words, the company produced 5.14 laptops every hour.
Now, let’s say the organization decided to hire an operations manager that optimizes processes and the workflow. This leads to a more significant increase in the number of laptops produced but maintains the same amount of effort. As a result, the data reflects the following:
|No. of laptops||270,000|
|No. of labor hours per day||9|
|No. of days worked in a month||18|
|Number of employees||41|
As a result, your output would be 6.8!
That’s a difference of 1.66 in productivity produced just as a result of one hire. You can see how having the data in front of you and one change or tweak can significantly impact the overall productivity numbers and total output.
Other methods to measure productivity
Of course, the above formula is a useful metric measure for productivity but is not the only way. In fact, it is suited to certain situations where the output can be quite clearly defined. But for example, some roles are not as clearly output-driven in terms of it being able to be measured quantitatively. Roles such as HR, for example, are not always measured by a particular number. Here are some other ways you can measure productivity, depending on the situation:
Online time tracking and project management software
Technology has developed to the point where at a glance and at any moment, you can track employee productivity. This works in environments where timesheets are used or any role that requires online work. ProofHub, Hubstaff, and ActivTrak are some examples of online time tracking software.
Project management software such as Asana and Trello are also quite helpful. These are quite useful, particularly for teams that are geographically dispersed or remote.
However, show caution with these types of tools as you don’t want to come across as micromanaging and ‘spying’ on your team members.
Yet another great technique to measure productivity is to generate feedback from co-workers. To ensure it is holistic, 360-degree feedback looks to get feedback from those above and below you, as well as any key stakeholders.
It’s a good yardstick to measure how an employee is performing and whether or not their objectives are being achieved as seen by those around them. This works great in an environment where there is regular collaboration and a great amount of communication. Feedback will be weak if the contact between the employee and peer is one or two times a year.
Follow the best practices here on how to effectively implement 360-degree feedback. Ensure that you request one or two questions around productivity.
Management by objectives
This is a technique in which an employee’s goals are clearly defined, and the tools needed to achieve these goals are provided. For example, if the goal is to increase sales by 50%, then the necessary tools need to be provided to accomplish that goal, such as technology, training, incentives, etc.
Regular check-ins will provide a clear understanding of barriers to achieving these goals and how they are tracked as well. Bi-monthly, quarterly and mid-year reviews are also useful checkpoints to track how well employees are meeting objectives.
These regular check-ins are key in management by objectives. An end-of-year review without regular check-ins is highly ineffective and only raises questions around procedural fairness.
Considerations when calculating productivity
- Industry factors – Consider that not all industries operate in the same way. In environments such as manufacturing or sales, where it is easy to represent productivity in numbers, it is easy to measure productivity. As an example, the IFC presents that the global metric for a customer service call to be answered is within 20 seconds at least 80% of the time. These all have nuances, as certain industries are more complex than others. Some industries, however, have measured are not as tangible. This is where using management by objectives or 360-degree feedback becomes useful.
- Organizational targets and benchmarks – It is possible to use external benchmarks to measure workforce productivity. This might be represented, for example, the average number of sales made per hour in a particular industry or the drop-off rate for sales calls. However, this does not apply to all jobs. Again, for service-related jobs, you may want to establish internal benchmarks and organizational targets.
- Efficiency (and how it differs from productivity) – It’s essential to establish a clear difference between productivity and efficiency—both of these need to be calculated. Productivity is an indicator of output over time, but efficiency indicates how well a task is completed. For example, an employee might be able to develop three sales presentations in one week, whereas another might create 20 sales presentations in the same period of time.
How to improve productivity
- Use technology to automate repetitive tasks – In HR, for example, automation can include interview scheduling, onboarding document signing flows, etc. At the same time that tasks are automated, upskill employees in other way. Again, in HR, that could mean helping them develop their business acumen or their HR strategy & leadership skills. That way, you can ensure a productivity increase.
- Work on employee engagement – Engagement and productivity go hand in hand. So if you want to make sure that your employees are productive, you have to continuously work on employee engagement. Research shows that engaged employees are up to 17% more productive than their peers. That’s quite a considerable difference if you calculate that across an entire organization.
- Clearly define what productivity means for each role/team – Everyone must understand what it means to be productive. It also includes setting clear goals. This will be vastly different across roles, and based on that, the ways you measure productivity will also differ (as we’ve discussed above).
Furthermore, consider doing an annual inventory on productivity in the workplace. Take a step back, and look at how all parts of the organization fit together. It might also be helpful to hire an external analyst to provide an objective view of what is working and barriers to productivity. That way, you can achieve productivity improvements and increase the quality of work at your organization.
To sum up
While calculating productivity might seem simple, it requires collecting a lot of data and tracking productivity regularly to be able to make improvements. It’s also essential to take into personal consideration differences and not paint all employees with the same brush. Likewise, don’t forget about all the factors influencing productivity – years of experience, education, and even stress levels.
Once you put a system in place, you can easily detect changes in productivity and design interventions to reach your target productivity.