How to Measure Labour Productivity

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What is labour productivity? It could mean:

  • The number of units produced per employee in a manufacturing business
  • The proportion of billable hours per employee in an engineering firm

Labour is often a significant cost in many businesses. It would be useful to monitor its effectiveness. To make labour productivity a meaningful performance indicator, there are 4 steps.

First, determine the functional area which you want to assess labour productivity. For example, the call centre of an insurance business.

Second, identify the work activity you want to monitor. For the call centre, a key activity is to contact existing policy holders and renew their policies.

Third, determine the output of the work. In this case, the output is policy renewal.

Fourth, determine the labour input for computing productivity. You can use the actual time spent on the work. By dividing the number of policy renewals by the time agents spend, you get the number of renewals per minute of agent time.

Alternatively, the input unit you could use is the number of renewal calls made. When you divide the number of policy renewals by the number of renewal calls made, you get the close rate of renewal calls.

Note that the first calculation uses agent call time as the input and the second calculation uses the number of calls as the input. Both are acceptable labour productivity measures.

To compute labour productivity, use actual work time if your systems can provide the data. Otherwise, look for other input units that are meaningful when you compare it with the output unit.

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