3.4.2 Analysing operational performance
Interpretation of operations data
Operations data includes
- Labour productivity
- Unit costs
- Capacity utilisation
These measure how efficient the business is working and whether they are using the resources around them to their full capacity. Operational data also five firms the chance to compare with other competitors and set further targets to reach goals in order to achieve a larger market share within the industry the operate in.
Calculation of operations data
Labour Productivity = this measures the level of output achieved with a given number of employees (how efficient the workforce is).
- = total output / number of employees
- The higher the number the better as it means there is a higher and more efficient rate of production per employee
Unit Costs (average costs) = this measures the costs of producing ONE unit/product of output
- = total costs (fixed costs + variable costs) / total output
- The lower the number the better as it will give you more profit (higher profit margins – revenue is the same). Also, if you have lower costs, then businesses tend to lower prices to gain more sales. If firms were to lower the price at the same level that they lower costs, they maintain the same level of profit.
Capacity Utilisation = the percentage of total capacity that is being achieved in a given period
- = actual level of output / maximum level of output x 100
- This higher to percentage to better as it means the business is using their capacity to the best of its ability. When a business is operating at less than 100% capacity, it has ‘spare capacity’
The use of data in operational decision making and planning
The use of data such as capacity utilisation, unit costs, and labour productivity, all allow for decisions to be made more efficiently and effectively. It also means the business is able to flow at a steady pace to reach targets set by a managers and the business itself. The use of data is instrumental in decision planning and making as it allows for manager to make informed decisions based on the workforce around them and how they impact the firm as a whole.