Business productivity measurement using standard cost accounting information

The measurement of productivity has been a problem area for many years because of the difficulties inherent in precisely defining and quantifying all the outputs and inputs which constitute the productivity equation. A productivity measurement technique is presented which focuses on the business aspects of an organisation’s performance, using standard cost accounting information, so providing an effective system to measure the productivity of an organisation and its departments. The technique is simple and flexible, and does not require the collection of additional information. It is based on the standard total productivity model where Productivity=Output divided by Input, and develops from this model a simple formula for calculating overall organisational productivity, as well as a differential approach which relates departmental productivity variances to standard cost and volume variances. Critical factors in the approach are the use of business goals, and the determination of effective output measures. This ‘business productivity’ concept is considered to have many benefits over other productivity accounting approaches because it provides a great deal of information vital to effective management decision making.