Labour Productivity - Labour Cost, Cost Accounting Video Lecture | Cost Accounting - B Com

hi there in this business topic video
we're going to take a brief look at an
important measure of operational
performance which is known as labor
productivity labor productivity is all
about how much each employee in a
business produces of course that can be
measured in different ways and typically
labor productivity either looks at the
volume of output measured in units
produced by each employee or
occasionally the value measured in in
currency and pound notes or dollars
produced by each employee in the
business we'll focus in this revision
workshop on perhaps the most popular
measure of labor productivity which is a
volume or output measure the reason why
a labor product is an important measure
of operational as well as HR performance
in a business is that whenever you look
at the cost structure of business you
usually find that labor and the labor
costs is a big part of it and therefore
the overall profitability or return of
the business and the efficiency of the
business is often very closely linked to
how productive the labor force are of
course the key link to remember is that
unit costs are directly linked to the
labor productivity and therefore in
order to remain competitive a business
needs to all do all it can to keep it
unit costs under control
a quick illustration of how you
calculate labor productivity and how
productivity can improve as output
increases and a number of employees
increases a little table here that shows
a number of employees what their costs
are and what their outputs are let's do
some calculations if you divide the
output in units for example top-line
they're two thousand outputs two
thousand units divided by the number of
employees that's two hundred units per
employee and if you move all the way
down today let's have a look at the line
forty employees their costs four times
as much there as it would have been the
ten employees because there's four times
as many employees but the output is
significantly higher at that stage
because of however the business has been
organized
you're getting 500 units of output port
in per employee that's a much more
productive level of labor productivity
and another calculation you can do is to
take all the labor costs there and
divide them by the output of units to
work out what the labor cost per unit is
we can see this example so with 40
employees they can achieve 20,000 units
of output then the labor cost per unit
is 20 which is significantly lower than
the less productive level of just 2,000
outputs from 10 employees that's just an
example of how unit costs and in
particular labor cost per unit can
change depending on the different
productivity levels of the labor force
and the key thing to remember about
labor productivity is that link that
link between the productivity rate
usually measured in terms of output per
unit or absolute output per employee and
labor costs now there are a variety of
factors that will influence the level of
labor productivity not all of these will
apply in every business of course but
let's just pick out one or two of the
most important here from this list on
the screen of course it's always
important to make a link between an
operational measure like labor
productivity and human resource
management and in particular the ability
of the business to to train and to to
look after and motivate its workforce
particularly a workforce if it's skilled
and is a key part of a having a quality
product similarly the way in which
production or operations are organized
will clearly have a significant
influence on the labor that the rate of
labour productivity
let's have a look at one more okay yeah
let's have a look at the top on there
the extent and quality of fixed assets
labor will often be more productive if
the business has invested significantly
in the latest machinery or facilities
that enable employees to be much more
productive at work IT systems I guess
been perhaps one of the very best
examples of that quick look therefore
and how you calculate their productivity
if you get a calculation question what's
the formula that you want to use
well the way to do it is to look for the
top line which is going to be the output
how much output in units has been
produced then you want to be dividing
that by the number of employees who were
at work the number of employees who
could have made the outputs over that
period and it's usually expressed don't
forget with all these calculations make
sure to get your right you get the
unit's right it's usually expressed in
terms of units per employee that per
period let's have a look at a simple
example
precision plastics sounds like a
plastics manufacturer makes ten thousand
units each week and employs fourteen
stuffin Factory how would you calculate
labor productivity well we're looking at
a volume measure there antwane it's very
simple that's 10,000 units 14 employees
but that must mean on average that's 714
units per employee and of course not
every employee will make that money not
every employee will necessarily be
actually involved in manufacture so
labor productivity is just an overall
measure of the overall productivity of
the workforce one of the key things also
to consider is how you might improve
labor productivity what happens for
example with a business that maybe has
got lower levels of labour productivity
than its competitors in theory of course
as we've mentioned before that may leave
the business at a unique cost
disadvantage so it needs to do something
about it typically it's not an easy task
but it involves a variety of measures
not the least being making sure that the
working conditions are right that
production is organized efficiently that
the the employees are sufficiently
well-trained know what they're trying to
do and have the equipment and the
facilities to be able to do their job
properly but of course another way of
improving labour productivity is to look
at ways of either removing or reducing
the requirement for labor and of course
a key concept there is automation
particular perhaps one of the best
examples there is the increasingly wide
use of robotics to replace some elements
of the labor force of the human labor
force in in operations so they're also
different ways to improve labor
productivity but none of them
easy they will take a little bit of time
and planning one of the problems of
course if you're trying to increase
labour productivity is that you're going
to come across some resistance employees
particularly where it involves
automation perhaps inevitably and
certainly understandably are somewhat
reluctant to see their jobs changed or
disappear in return for giving a job to
a robot and of course it's possible that
employees may say well look our
productivity is improving and therefore
we actually want to be paid more per
unit so you have to be careful not
having unintended consequences of your
strategy to improve labor productivity
okay that's just a brief introduction
there - an important measure of
operational performance and efficiency
labor productivity