We explain what effectiveness, efficiency and productivity are, how they differ and what the indicators of each one are.
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 management areas.
The three concepts are used daily within organizations and are defined as follows:
- Effectiveness Ability to achieve the goals that the company set out to achieve.
- Efficiency Ability to achieve established goals using the smallest possible amount of resources.
- Productivity Production capacity, according to the relationship between the product and the input, that is, the resources that had to be used to generate those goods with the quality that customers are looking for.
See also: Organizational objectives
Differences
Some of the differences that exist between the concepts of effectiveness, efficiency and productivity are:
- Efficiency does not consider savings of resources or their care, as efficiency does.
- Although the definitions of effectiveness and efficiency consider the fulfillment of goals within certain deadlines, efficiency means achieving goals as quickly as possible and spending the least amount of resources necessary. In efficiency, time and resource use are left aside.
- Efficiency and effectiveness are two qualitative concepts, while Productivity is a quantitative concept.
- Efficiency requires effectiveness.
- You can be productive but ineffective or you can be effective and unproductive.
- Productivity is a magnitude which 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, to quantity.
- Efficiency focuses on how to produce a good the effectiveness in the ability to produce it.
Indicators
To calculate the effectiveness, efficiency and productivity indicators, the following formulas must be used:
- Effectiveness To evaluate effectiveness, a percentile table is used, with a score from 1 to 5 in which 1 is very ineffective and 5 is very effective. The formula is the following: Effectiveness = (achieved result * 100) / expected result
- The formula is: Effectiveness = (result achieved / 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, the performance of the company's personnel can be evaluated, improve competitiveness and establish goals correctly. In addition, they are a key tool to adjust costs and times.
Examples of effectiveness, efficiency and productivity
Some examples of efficiency may be the following:
- A company produced 10 pairs of shoes per hour, until an employee designed a new system that allows 15 shoes to be produced in 50 minutes.
- A construction company had estimated that it would take 10 months to build a bridge, but to achieve this, it had to hire more people and extend shifts. The total cost was much higher than estimated. They were not efficient.
- A charter took 60 minutes to pick up the 12 people it had to transport 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.
The productivity can be exemplified in the following way:
- 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 work day. Per month, they work a total of 25 days. In this factory, productivity is two jackets per hour for each man.
Continue with: Management in administration
References
- “Productivity, effectiveness and efficiency”, in PQS.pe.
- “Effectiveness, productivity, efficiency, do you know how to distinguish these concepts?”, on Sage.com.
