Productivity Formula: How to Calculate Workplace Productivity?

“Productivity is never an accident. It is always the result of a commitment to excellence, intelligent planning, and focused effort.”

Paul J. Meyer

Business leaders and companies’ management have long used the productivity formula to calculate labor workplace productivity. Getting more work done in the least possible time is critical for organizations to enhance their efficiencies and bottom line productivity. This organizational desire first manifested when Henry Ford, the pioneer of assembly line production, offered five dollars a day to his workers at Ford Motors instead of two dollars, which was a substantially higher sum than the daily workers’ wages in the early 20th century. Many believe that his benevolence had more to do with halting large-scale attrition and making his products more accessible to the working classes.

Irrespective of the real reason behind this ‘out-of-the-box’ idea, one cannot overlook his desire for greater productivity among his workers, even at the cost of paying twice the remuneration. His decision was based on an assumption and not on any scientifically-validated productivity formula that yielded handsome returns. So let us first understand workplace productivity to decode the productivity formula.

What Is Workplace Productivity?

Workplace productivity is the work undertaken by employees of an organization over a specific duration. It means how much work a worker has accomplished in a given period. It measures the cumulative output of goods and services against the cumulative input of labor and cost. Usually, companies assess workplace productivity through output per hour of work and output per worker.

Productivity Formula: The Productivity Equation

COVID-19 has underlined that we live in a disruption-induced and increasingly uncertain, tumultuous world where factors beyond administrative control can profoundly impact productivity. These factors, coupled with the new workplace model that companies had to pivot to, hybrid-and-remote-first, have challenged them immensely. Yet, even amid these nebulous factors, an organization can measure its employees’ productivity at an individual, team, and company level using the formula below.

Organizational Productivity = Output (of goods or services)/ Input (of labor and cost)

Let us understand this with an example. A shoe manufacturing company produces US$ 1.5 million worth of shoes by investing 30,000 labor hours. Then, the company’s productivity is US$ 1.5 million/3000 hours, which equals US$ 50 per hour. It means that the company generates revenue of US$ 50 per hour. One can tweak the formula to obtain employee productivity. It only requires altering the unit of service (UOS), which is ‘labor’ in the formula mentioned above.

Employee Productivity = Output (of goods or services)/ Employee Work Hours

Let us use the example stated above. The company generated US$ 1.5 million in revenue by allocating the job to 500 employees. Then the productivity would stand at US$ 1.5 million divided by 500 employees, which amounts to US$ 300 per employee per week. A ‘week’ varies for companies from five to six days. If we consider that the company has a five-day and eight-hour work policy, then an employee’s productivity totals US$ 60 per day and US$ 7.5 per hour.

Why Productivity Calculation Matters

Organizations have several pertinent reasons to measure workplace productivity effectively, such as calculating efficiency, understanding how teams allocate resources, and whether they are over-or-under-utilized or not. Companies must also measure productivity to make informed hiring decisions. Besides, companies have moved to a hybrid-and-remote-first setting amid COVID-19. This altered workplace environment, where the absence of direct and in-person supervision has emerged as a challenge; has lent tailwinds to the concept of accurately measuring productivity and expedited it into the mainstream, why companies across the board are keener on measuring their employees’ output.

Benefits of Productivity Calculation and Using the Productivity Formula

1. Productivity Formula Can Help in Business Management 

Insights into productivity help manage vendor and customer expectations. For instance, companies can communicate realistic timelines in which they can deliver projects and services when they know their workforce’s productivity levels. Besides, management can make informed decisions on whether their current business models are yielding the desired dividends or not, and accordingly change processes to optimize their output.

2. Understanding Alterations to the Productivity Levels

A scientific and verifiable measure of output can empower companies to change their internal processes and systems. It enables them to understand the changes in their workforce’s output, after which they can make timely interventions. This understanding allows organizations to utilize their workers optimally and address issues marring their output levels.   

3. Productivity Formula Can Help Optimize the Workforce

A measure of productivity allows intelligent resource allocation. The valuable resourcing data helps companies acquire an adequate number of employees to ensure that their staff is not over-worked beyond their ability to manage tasks. It also gives them insights into under-utilization, which they can use to make the necessary changes to organizational structures, work schedules, and Key Responsibility Areas (KRAs). All this optimizes cost and enhances revenue. 

4. Time Management 

Time management is critical for productivity calculation. Companies can use employee productivity data to determine whether their employees are managing their work time well or not. They can then employ these insights to understand their employees’ bottlenecks, such as lack of expertise, legacy equipment, the need for upskilling or reskilling, and make arrangements accordingly. Several companies have taken corrective measures like capping the number of hours designated for meetings and offering skills-based interventions to enhance employees’ time management abilities.

5. Organizational Growth 

Productivity is directly linked to growth. Organizations that consistently get the most out of their resources without over-burdening them generate more revenue, creating more cash flows that drive expansion into untapped markets. Also, companies are able to offer more competitive remunerations to their staff, attracting the most deserving and qualified professionals who provide a superlative customer experience, creating a cycle of growth and expansion.

6. Timely Feedback

Organizations can use workplace productivity data to identify professionals who are unable to maximize their efficiency. They can provide timely feedback to such individuals, helping them course-correct immediately. Thus, the entire workforce can align itself to the broader organizational objectives. This mechanism helps create a cohesive work unit that works collectively.

The Productivity Formula Varies, and How

The productivity formulae mentioned above only illustrate how to calculate productivity for the mentioned scenario. For instance, a company could measure salespersons’ productivity by assessing how many new clients they have onboarded or how many of them they have retained. Similarly, a Business Process Management (BPM) center may evaluate an executive’s output by calculating the number of clients he or she has serviced in a working day. This indicates that the productivity formula varies significantly across industries and sectors

Moreover, business owners or project managers must consider that sometimes employees do not have control over their productivity, like software developers who cannot influence the number of clients the company onboards. Thus, those in charge of assessing productivity must factor in these nuances to outline the matrix against which they would evaluate productivity.  

Some Ways in Which Companies Can Undertake Productivity Calculation

By Using Online Time Tracking and Project Management Software 

Online time tracking and project management software are one of the most convenient ways to evaluate productivity. These software packages have in-built and highly customizable timesheets that provide instant information on time invested in completing tasks. Project management and online time tracking software packages are especially beneficial for organizations with remote or hybrid workplace setups. However, business owners and project managers must ensure that their remote teams do not construe it as micro-management.

360-degree Feedback

For the unversed, 360-degree feedback is a process where employees of an organization receive anonymous feedback from their colleagues with whom they work closely. They could include managers, peers, subordinates, and even customers. Three-sixty-degree feedback involves a questionnaire that all raters, including the employee under assessment, have to rate on a pre-decided scale and provide remarks to support their rating. This mechanism gives a holistic employee perspective, helping evaluate an employee’s readiness level on the competencies required to perform well. Project managers and business owners can use these questionnaires and include questions about productivity to understand their employees’ performance levels in an unbiased manner. 

Management by Objectives 

Propounded by Peter Druker, management by objectives is a strategic management method where business owners or project managers define measurable and clear goals and provide their employees with the necessary tools to achieve them. These goals are mutually defined and agreed upon and are usually long-term. The tools can include new technology platforms, upskilling or reskilling programs, and incentives. Those managing this process must conduct periodic assessments of employees to determine their progress in achieving the desired outcomes. They may also conduct monthly, quarterly reviews to gauge whether or not the employees are on the right track. 

Effective Tips for Productivity Calculation

1. Communicate Timely Feedback 

Any productivity-related intervention after labor productivity calculation must include timely, constructive, and actionable feedback. Inconsistent and vague feedback does not offer any value to employees looking to improve their output. Also, timely feedback streamlines work, reduces delays and duplication of effort, and motivates workers by instilling confidence.

2. Set SMART Goals 

SMART (Specific, Measurable, Achievable, Relevant, and Time-Based) goals make employees work harder and boost motivation. It also has a multiplier effect on employee engagement. Besides, the goal-setting exercise aligns workers with an organization’s immediate, medium-term and long-term objectives. Goals also positively impact time management as employees have a deadline against which they must complete their deliverables.

3. Provide the Necessary Enablers 

Motivation, hard work, and commitment cannot substitute skills enhancement, technology support, and equipment. Employees can only generate higher productivity when they are enabled well. Therefore, organizations and project managers must first identify the enablers, which can vary for individuals, and provide them the requisite support to augment their productivity.  

Tips and Tricks to Boost Workplace Productivity Using the Productivity Formula

1. Efficiency Is Not Productivity 

Leaders often confuse efficiency with productivity. However, these are two entirely different constructs. The former measures how well one does the work, and the latter is the work done in a pre-defined duration. For instance, a worker may stitch fifty pairs of shoes in a week, but only 20 of them make it through the quality check process; the rest get rejected. On the contrary, another worker may only stitch 35 pairs of shoes in a week, but only three pairs do not pass the quality check process. Here, the first worker may be more productive but not more efficient. Hence, organizations and project managers must improve their staff’s productivity without impacting their efficiency. It is a tightrope to walk on, but finding the right balance between the two, and augmenting the two together, is critical for organizational success in the longer run.

2. Employee Engagement Is the Key

An actively engaged workforce is critical for the longevity and success of any organization. Engaged employees are not those who are merely occupied with their work, but individuals who are committed to the assigned tasks without the need for supervision. Engaged employees are self-motivated and highly efficient individuals who have an emotional connection and a deep sense of ownership. Also, they are more productive. Research indicates that they are up to 22 percent more productive than disengaged employees, but there are other benefits too. Engagement lowers turnover rates and improves bottom lines, enhances the quality of work, and results in more attention and involvement. 

Thus, organizations must invest earnestly in employee engagement activities when eyeing ways to improve workplace productivity. They can foster a positive work culture that makes employees feel trusted by their leaders. Companies and project managers must also apprise employees of the professional development opportunities to use them to their advantage.

3. Employ Technology for Repetitive and Bandwidth-sapping Tasks

Automation and technology are great ways to reduce workload and engage staff in more productive activities. First, however, as business owners and product managers, you must identify the work activities for which you can leverage technology. For instance, academic institutions can use online examination software to create question papers, slot exams, and even mark answer sheets. This arrangement would allow professors to focus on higher productivity tasks.  

4. Define Productivity

Productivity can mean vastly different things for individuals, teams, and job roles. Therefore, companies must define productivity vis-à-vis these aspects and communicate clear goals to their employees. Any ambiguity will retard the pace of work, demotivate employees, and cost more work hours. Setting these goals in tandem with the workers is vital to ensure complete clarity on the deliverables and what constitutes productivity.

Ace Your Productivity Game

Calculating productivity is as much an art as it is a science. It requires collating and interpreting data, defining goals and deliverables, and employing technology and upskilling and reskilling strategies. However, it also demands decoding intangibles like motivation, likes, and dislikes, driving employee engagement by creating a dynamic company and team culture. Efficient organizations and project managers can strike a balance between the two and learn on the go.

Also, it is not a one-time process and requires continuous involvement and investment, which mandates long-term commitment. Once companies achieve the objectives, they can keep fine-tuning their techniques to maintain optimal workforce productivity levels.