The History Of Factors Affecting Productivity Accounting Essay


Job satisfaction: Human resource is an important input to the production /services system..It is the responsibility of Management to see to it that employees are motivated through fair compensation for the work done by them.Incentive systems shoule be designed to reward workers for a job well done.It should be seen that workers do their job in safe and hygienic conditions which gives them quality of work life..Labour turnover and absenteeism should not take place because it directly affects Productivity

Government Policy: While taking a look at production/operations system it is noted that among the macro- environmental factors Government Policy plays a major role in making laws which decide the freedom given to a business firm through imposing several laws. These laws like MRTP,FERA etc which have a profound inpact on the productivity of a firm.

Management : The mission, vision and objectives of an Organization are framed by Top Management. It is middle management which gives guidelines to the workers what they should do and how they should do it in the best possible way so that the mission of the Organization is fulfilled. A supervisor represents the lowest level of management and is in close contact with the workers.Good co-ordination between them is qa guarantee of achieving good productivity.

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Capital : Financial input is one of the major inputs in the input output system.Productivity which is an index of the synergy should make judicious use of money while purchasing of materials. ,Machinery and Capital equipment so that not a rupee is wasted..Even managers should set an example before subordinates by a frugal use of money. They should not try to become a prey to a 5 star culture and live ostensibly .Such an approach is called Total Cost Management.

Competition: Competitors form the micro-level environment .A firm should attempt to enhance it's productivity keeping in mind the approach of the competitors towards improvement of productivity..The positive points of competitors should be emulated by the firm to enhance its productivity.

Natural Resources: Effective harnessing of available natural resources is a necessary condition to enhance productivity.

Technological aspect

Material Planning and Management: The procurement of materials should be planned on the basis of 5Rs i.e right source ,right time ,right quantity ,right quality and right price.

Plant and Equipment : The plant and equipment should have be capable to give right output with maximum availability and operate at the rated speed.The overall equipment effectiveness should be more than 70 percent which is a very good industry standard.

Quality : The quality of the product or service as per the specifications.and should be verified by proper testing procedures.It is an incorrect notion that Quality and Productivity are diametrically opposite criteria .According to Deming, the quality Guru, good quality product denotes less defectives and more useful output.

Plant layout :and Operations scheduling: Proper workplace layout and design helps in a streamlined flow of materials. which is conducive to fewer bottlenecks if the scheduling is done properly

Research and Development: According to Peter Drucker the management Guru. Industries do only two good things: One is developing new and competitive products and secondly marketing them to the customers .Good Rand D helps firms to remain competitive and fosters Productivity

Standardization of product and processes: The firm should update its processes so that the conversion of raw materials into finished products is achieved with the production of minimum scrap. As far as possible standard components should be used in the final assembly .Designers should be encouraged to use standard parts instead of non standard parts as per their whims .By introducing modularity in the Product Design ,a customer can be supplied products as desired by them.This ploy is termed Mass Customization.

8 Sociological factors; A Proper work culture should be inculcated in the workers.For achieving thie, the supervisors and even higher levels of management should not hesitate to soil their hands.This can be a very good motivator to the workers and result I higher levels of Productivity.


The techniques could be classified into 5 basic types which are as follows

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Product and Process based



Task-based techniques

1. Technology-based techniques:

Automation based such as CAD/CAM, Robotics, Energy conservation technology, Maintenance management, rebuilding old machines, These techniques reduce various Input values.

2. Product and Process based techniques:

Product based techniques leverage materials input (IM) to the greatest extent. Product diversification, Product simplification, Standardization, Advertising and Promotion .enhance market size and value of output to increase productivity

3. Employee-based techniques:

Incentives, job rotation, job enlargement, job enrichment, training & education, quality circles, reward and punishment etc. These techniques predominantly reduce human resource inputs (IH )value.thereby increasing Productivity

4. Material-based techniques:

Inventory control, material requirement planning, material handling improvement, recycling of materials, quality control. These techniques reduce material input costs IM value directly .resulting in increased productivity

5. Task-based techniques:

Methods engineering, Work measurement, Ergonomics (Human Factors Engineering).

The above list is just an indicative list. Any particular industry has to determine for itself which of the techniques will result in enhanced productivity. The productivity improvement committee has to choose the technique which suits their need without needlessly increasing the cost of input. What is most important is that a strategy should be implemented effectively.

Such a philosophy is critical for increasing the chances of achieving the desired long-term profitability. Furthermore, in many cases (in which the firm is reluctant or unable to undertake the necessary marketing research studies) I is the only variable way of providing guidelines for ensuing years strategies.

Related to the adaptive experimentation approach is the needed focus on productivity. Strategy alone, cannot lead to the desired results. Good operations are also required. The relationship between strategy and operations is illustrated in Fig 2.3. The idea, of course, is to be in cell IV. Yet, firms often find themselves in cells I or III the poor operations cells. Adaptive experimentation can help improve the quality of the firm's long-range strategy; however, it must be supplemented with approaches to improve operations.











FIGURE 2.3 The Relationship between Strategy and Operations

Glossary of Terms



Matching physical work capacities and physical environment.

Inventory Control


Deals with two basic questions; when to order and how much to order

Job Enlargement


Increase in the responsibilities linked with a job.It is a non-financial motivation technique to improve human productivity .Gives worker pride of ownership of job He can emboss name on product

Job Enrichment


Providing variety in assigned tasks giving autonomy to complete a job of higher status.

Job Rotation


Job is changed for short periods of time to break monotony and boredom.

Methods Engineering


A systematic procedure to eliminate, combine or reduce work content of a task. through method study tools like flow charting; micro motion analysis

Product Diversification


Addition of new product types to existing models .in new markets .A risky but promising strategy

Product Simplification


Elimination of extra product lines, types and models.



Improving human productivity by specialization on the job work.


Productivity may be measured quantitatively, qualitatively, or in terms of outcomes.

Quantitative Measure - A type of productivity measure that focuses on the quantity of product produced. and both the input and output can be expressed in monetary terms

Qualitative Measurement - A type of productivity measure that is concerned with the quality of what is produced .but cannot be counted numerically .A point rating can help in such cases where the output and input are intangible e.g. in case of service providers

Outcome Measurement - A type of productivity measure that determines whether the product satisfied the functional requirements which it was supposed to do.

Unit Analysis of Productivity

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The unit of analysis used to calculate or define productivity are

Aggregate productivity-the total level of productivity for a country.

Industry productivity-the total productivity of all the firms in an industry.

Company productivity-the level of productivity of a single company.

Unit productivity-the productivity level of a unit or department.

Individual productivity-the productivity attained by a single person.

2.7.2 Productivity Model : This model was developed by Schnieder( 1965) and is used even today as one of the most important approaches to the calculation of productivity because it is comprehensive and logical.

Total Productivity Factor is expressed as ratio of output divided by total inputs. The inputs include Human, Material, Capital, Energy and other factors.


TPF = Output O/Input I =

Where, Input ( I ) includes

IH Human resource Inputs

IM Material inputs

IC Capital inputs

IE Energy inputs

IX Other Inputs and working capital (W)

Individual Productivity factors can be calculated based on any specific input, say IH or IM or IC and so forth to determine the influence of any particular input on Productivity.

2.8 Break Even Analysis using Total Productivity Equation:


C---Total Input I minus working capital W

T----total productivity factor

W-----Working Capital


I----Total Input including working capital

It is to be noted that the working capital W includes the cash ,accounts receivable ,inventory, etc which are used to pay for other inputs such as wages and salary ,of human resource ,oil, gas, water and energy bills. Thus W is not included in cost inputs(C) in the model

If TPF is denoted by T we can write,

T = ………………2.1 .

Where C is cost of inputs W is working capital Re-arranging eq. 2.1,

P= (T-1) I +W………………………………..2.2

If T is set equal to one, profit P = W

Like-wise, at Break-even point P=O, then Total Productivity Factor

O= (T-1) I+W OR TI -I+W =O OR TI = (I-W) But (I-W) =C

Hence at BEP: TI = C or T = …………2.3

Thus, referring to the figure 2.4 Breakeven Point occurs at a Total Productivity factor TB which is somewhat less than 1. The interpretation is that when the profit equals Working capital the Total productivity factor is one. The profit made in this case is spent in running the plant and paying salaries to the workers ,At profit equal to zero salaries etc have to be paid from companies reserves and indicates a position of loss with a TPF less than oneThe model is explained through an illustrative example :

Example: A certain firm has the following data collected over a specific time frame:

Total Input I= Rs 1050 ,000; Output O =Rs 1250, 000 Working capital W =Rs 35,000

Calculate the total productivity factor TPF, total productivity factor at the break- even point. and Profit based on the Break Even Analysis model


TPF = Output O/ Input I = 1250,000/1050,000= 1.1( approximately)

TPF at break-even point = C/I = ( 1050,000-35,000)/1050,000= .966

Profit = ( Output O-Input I ) + Working capital W .This is because the model states that a real profit is made only when at least a profit equal to the working capital W is made at TPF equal to one ( Refer to fig 2.4 )

Thus Profit P = (1250,000 -1050,000)+ 35000 = Rs 135,000

Some Additional Examples on Productivity Measures:

In the present section some practical examples of Productivity followed in manufacturing sector and are typical in nature are taken up These examples will give the student an increased grasp of how productivity is calculated in industrial situations:

Q 1: The following data is available from the Industrial engineering department in an automobile plant:

Plant capacity: 7200 cars per year ,Overall plant effectiveness: 0.4 Number of production machines:102 Number of 8 hour shifts: One Number of working days per month:25.Allow break @3 percent in the shift.

Calculate the Productivity of the plant in terms of number of cars per year per direct worker

Solution: Number of cars actually produced per year = 7200x0..4 =2880 cars

Ideal man-hours available per year= 102x25x12=30600

Actual man-hours available per year allowing for break @ 3per cent =30600x .97 =29682

Number of men required= 29682/8 =3710 men

Productivity ratio= Number of cars/Number of men=2880/3710 = .776

Q 2: Calculate the value added per employee in an automobile plant on the basis of the following data obtained from the Industrial Engineering Department:

Number of cars sold per year =2880,Unit price of a car = 4 lacs Assume raw material cost: 65 percent of the Price of the car Variable cost is to be taken as 12.5 percent of the price of the car .Total direct and supporting employees = 4000


Formula used for value added per employee per car is:

VA = Net Contribution/Number of employees = ( Price-Variable cost)/Number of employees

Substituting the given values from available data ,we have

VA = [ 4-4(.65+.125)]/4406

=[ 4-3.1]/4406

Value added for the sale of 2880 cars per employee per year = VA X2880 =.588


In the present chapter the authors have discussed various aspects of Productivity which is one of the most important pillars of World Class Manufacturing. Productivity is defined as the ratio of value of output to cost of input which is best understood through considering Production system as an input- output process .Productivity measures such as Total Productivity, total factor productivity, ,partial productivity are explained. A unique model developed by Kendrick on break even aspect has been explained. The section on factors affecting Productivity several internal factors such as capital, human, material, managerial skills and other assets are considered, while the micro level external factors like competitors ,customers and macro-level external factors like government influence and legal factors considered

Considering the importance of Productivity as a measure of success of a firm ,several techniques of improvement of Productivity like Technology based, Task based, Employee-based ,Product and Process based factors are discussed.One of the highlights of the chapter is the inclusion of solved numerical examples which should help the student to grasp the meaning of Productivity

Review questions:

1 Define Productivity in the light of a Production system as an Input-Output process

2 Differentiate between Total productivity, Total factor productivity and partial productivity.

3 What are the factors affecting Productivity? Explain in detail

4 Explain the break even Productivity model

5 Explain the various methods of improving productivity.

6 What partial productivity measures are utilized by automobile and other engineering industries.