effectiveness, efficiency and productivity

Y-Negocios

2022

We explain what are effectiveness, efficiency and productivity, how they differ and what are the indicators of each.

Effectiveness, efficiency and productivity are three different but related concepts.

What are effectiveness, efficiency and productivity?

Effectiveness, efficiency and productivity are three terms that are closely related to each other and that are widely used within the business environment, especially in the areas of management.

All three concepts are used daily within the organizations and they are defined as follows:

  • Effectiveness. Ability to achieve the goals that the company set out to achieve.
  • Efficiency. Ability to achieve goals established using the least amount of resources possible.
  • Productivity. Production capacity, according to the relationship between the product and the input, that is, the resources that should have been used to generate those goods with the quality sought by the customers.

Differences

Some of the differences that exist between the concepts of effectiveness, efficiency and productivity are:

  • Efficacy does not consider saving resources or their care, as efficiency does.
  • Although the definitions of effectiveness and efficiency consider the fulfillment of goals within certain timeframes, efficiency implies reaching goals as quickly as possible and spending the least amount of necessary resources. In efficiency, time and resource usage are neglected.
  • Efficiency and effectiveness are two qualitative concepts, while productivity is a quantitative concept.
  • Efficiency requires effectiveness.
  • It can be productive but ineffective or it can be efficient and unproductive.
  • Productivity is a magnitude that describes the activity of a company, while efficiency is an attribute that a process may or may not have.
  • Identifying the sources of inefficiency and determining how it can impact productivity is key for any company. When the organization is inefficient, resources are wasted.
  • Efficiency is linked to quality while productivity is linked to quantity.
  • Efficiency focuses on how to produce a good, efficiency on the ability to produce it.

Indicators

To calculate the effectiveness, efficiency and productivity indicators, the following formulas should be used:

  • Effectiveness. A table of percentiles is used to evaluate the effectiveness, with a score of 1 to 5 in which 1 is very ineffective and 5 is very effective. The formula is as follows: Efficacy = (achieved result * 100) / expected result
  • The formula is: Effectiveness = (achieved result / actual cost) * time invested / (expected result / estimated cost) * expected time. If the result obtained is less than 1 it is considered inefficient, if it is equal to 1 it is considered efficient and if it exceeds 1 it will be very efficient.
  • Productivity. Productivity is responsible for establishing efficiency in the use of resources. To make this evaluation, the formula is the following: Productivity = outputs / inputs.

Thanks to these measurements, you can evaluate the performance of the company's staff, improve the competitiveness and set goals the right way. In addition, they are a key tool for adjusting costs and times.

Examples of effectiveness, efficiency and productivity

A company that produces more in less time is more efficient and productive.

Some examples of efficiency can be the following:

  • One company produced 10 pairs of shoes per hour, until an employee designed a system new that allows to produce 15 shoes in 50 minutes.
  • A construction company had calculated that it would take 10 months to build a bridge, but to do so, it had to hire more people and extend shifts. The total cost was much higher than calculated. They were not efficient.
  • It took a charter 60 minutes to pick up the 12 people it had to transfer to the plant, until it found an alternative route that allowed it to pick up those 12 people in 45 minutes.

Some examples of effectiveness are:

  • A dressmaker was hired to make five overalls in four days and she succeeded.
  • A pastry chef had to prepare three cakes before noon. He got up early and got it.
  • The exhaust pipe of a taxi broke and the taxi driver managed to repair it in a very short time.

Productivity can be exemplified as follows:

  • In one plant 70 umbrellas are manufactured per hour, while in the competition 90 units are produced in that same time. The last plant is more productive since in the same period it manufactures a greater volume of umbrellas.
  • A factory that produces 200 jackets has 50 employees who have an 8-hour workday. Per month, they work a total of 25 days. In this factory, productivity is two jackets per hour for every man.
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