Exploring the Relevance of Productivity Ratios

Productivity ratios are widely used by companies and individuals as indicators of the efficiency with which an organization or an enterprise is able to convert its inputs into relevant outputs.In order to have a solid grasp of how ratios on productivity can be used, the concept of productivity should be well-understood. In economics, productivity is commonly defined as the measure of output per unit of input. In many instances, it is also considered a measure or metric of engineering or technical efficiency. Productivity is related to the concept of production, the process of converting inputs to outputs. For many economists, production refers to all economic activities with the exception of consumption. There are various inputs or resources that are considered as factors of production. Among which are labor services, machines, raw materials, land, entrepreneurs, and capital goods. Production outputs, on the other hand, may take the form of finished goods or delivered services. In this context, technology is defined as the way by which production inputs are combined in the process of making output.Measuring productivity in a regular basis is critical for many businesses. By doing this, it becomes easier for them to identify problems that may seriously hamper their profitability as well as to formulate appropriate solutions. Three productivity measures are commonly used presently and these are partial productivity, total productivity, and total factor productivity. Partial productivity illustrates the contention that total productivity can only be measured approximately or partially using any component of production. The single-factor productivity measurement is one of the most typical solutions of this productivity measure. This measurement is defined as the ratio of output and a single input factor. Total productivity, meanwhile, is measured by incorporating all inputs required to create a finished good or provide a service. In this method, inputs can be grouped into certain categories as long as they are distinguished from outputs. Total factor productivity, on the other hand, is a productivity measure that focuses on capital and labor, two of the most common input factors. When used in a national scale, a country’s gross national product (GNP) is usually considered as the output.Among all production factors, labor force is generally identified and acknowledged as the factor that is most likely to affect the productivity of a business enterprise. Labor productivity, or the “average product of labor”, is determined as the average output of every worker. To increase the productivity of employees, as well as the entire organization, many companies opt to implement computerization and automation. These increase individual employee productivity, as they minimize the number of tasks that each worker would have to perform. Other companies, meanwhile, develop wage incentive plans and implements changes in their organizational structure in their efforts to improve productivity. Many business enterprises also opt to increase their productivity by increasing their output. By investing in research and development, companies are able to find ways to increase the efficiency of business processes and develop new products and processes. Nevertheless, before any of these solutions are planned and enforced, companies look at applicable productivity ratios.