4.2 Analysing operational performance.

Question 1

What is labour productivity and how is it calculated?

Answer 1

It measures the output per employee.

Labour productivity = Total output / number of employees

Question 2

What are unit costs and how are they calculated?

Answer 2

Measures cost per unit. Sometimes called the ‘average costs’.

Unit costs = total costs/ total output.

Question 3

What is probelmatic with the way productivity is measured?

Answer 3

• Which workers should be counted? Should maintenance crew, management crew and clerical staff be counted, or should the ratio concentrate on direct labour only, i.e. shop floor workers?
• How should part-time workers and long term sick be treated?

Question 4

What does the capacity of a business measure?

Answer 4

Measures the maximum it can produce given its existing resources.

Question 5

What is capacity utilisation?

Answer 5

It measures existing output as a percentage of the maximum output possible.

Question 6

How is capacity utilisation measured?

Answer 6

CU = (Current existing output / Maximum possible output) x 100

Question 7

What is the capacity utilisation?

A hotel has 50 rooms occupied out of a total of 150 rooms?

Answer 7

(50/150) x 100 = 33.3%

Question 8

What happens if capapcity utilisation is higher?

Answer 8

The more resources are being fully utilised.

Question 9

Why would a low capacity utilisation be a concern to a manager?

Answer 9

• Suggests that demand is relatively low.
• Cost per unit- likely to be high. Due to fixed costs of business not being spread over many units. Means high fixed costs per unit- may result in low profit margins/ loss on each unit.

Question 10

Why can the capacity of a business change over time?

Answer 10

It can change as more resources become available.

• More staff can be employed.
• More land can be aquired.
• More equipment can be bought.

Question 11

What may managers want to do if capacity is too low?

Answer 11

• Managers may want to consider whether it is worth investing to expand.
• This will depend on factors such as the costs, the likely returns and the risks involved.

Question 12

What may managers want to do if capacity is too high?

Answer 12

Managers may wish to consider whether they can increase demand (perhaps by improving the promotions or the product) or whether the business should ‘downsize’, that is to reduce capacity by closing part of the facilities.

Question 13

Why may some businesses choose to operate at less than full capacity?

Answer 13

• In order to be more flexible.
• E.g. They might want to have capacity to cope with increased orders from regular customers. Without this- a business might let down its customer and risk losing them.

Question 14

What capacity do most businesses wish to operate at?

Answer 14

Operate at close to full capacity- e.g. 90%.

Question 15

What must managers consider when making operational decisions?

Answer 15

• Consider the costs, profits, risks, impact on competitiveness & effect on other functions & stakeholders.
• Some decisions may be relatively quick to implement- e.g. discussing lower prices with suppliers-
• others may take a significant period of time e.g. changing suppliers / changing capacity.

Question 16

What must managers consider when making operational decisions?

What have development in technology done?

Answer 16

Enabled operations managers to track data more effectively & hopefully make better decisions.