Calculating productivity Featured

9:53am EDT July 22, 2002

Business owners in need of a quick way to estimate productivity and calculate cash flows should consider “How to Predict Year-End Cash” by Martin D’Amico.

D’Amico breaks each business down into hours and units, and describes how to use them to determine productivity levels that can, in turn, be used to adjust unit pricing or staffing. An owner can monitor day-to-day business activity, develop a success plan, become financially self-reliant and focus on the future of the business.

An excerpt from the book:

“If the problems are not machine related, you must determine whether they are caused by new people on the job — people who have been improperly trained or people who lack motivation. These are all related to supervision, buy you must get to the bottom of the problem and reverse all these bad signals.

“Although bad, they are much easier to react to because they happened only the day before. You will not waste a lot of dollars waiting for the problems to reverse themselves. When relating efficiency to more-the-better labor (including supervision and equipment maintenance as well as the different shifts), adherence to the standard will become a team effort, because all department hours are being measured on the good units of the production department.

The last labor deviation to be captured is from the weekly payroll. Get a payroll report that calculates an average rate, per hour, for all employees in the efficiency pool, including overtime and shift premiums (the total payroll dollars divided by hours paid). If it is more than the standard rate per hour from your profit plan, you are being labor-rate inefficient.”