Labour Ratios

Labour Ratios

Labor efficiency

Labour efficiency ratio tell us about how efficiently labour are working  the efficiency ratio is calculated on the concept what is expected from labour and how is actual performance. If the result are below the 100% then we say that labour are under performing when the result are above 100% we say that labour performance is beyong the expectation and if the result is 100% the labour performance is upto expectation.

Labour efficiency is important because labour involve a high production cos therefore the labour should be working efficiently and efficiency ration provide effective information for controlling the labour performance.

Labour efficiency ratio is an important factor while calculating the bouns for the employees. The bonus is also an important tool to improve the efficiency of the worker.

Efficiency is very important because low efficiency mean that you are paying for wasted time. The some worker have tendency to waste time and efficiency ratio can be used to identify those worker or group of worker. The low efficiency is effectively mean that you are paying more and getting less.

 formula for efficiency

E efficiency Ratio =expected time/Actual time *100

Capacity utilization = (total hour spend / Total hour available) X 100

Production Volume = (Expected Time/total time available) X100

Example

There are 30 days in a month and 10 hour and number of employee are 10 there is idle time of 300 hours and standard time per unit 1 hour. Unit produced 6000 and expected time per unit produced was 20 minute.

Solution

Total hour available ( 30 days @ 10 * employee) =3000 hour

Total Productive hour ( 3000 hour – 300 idle ) = 2700 hour

Expected hour = 6000 X 20/60 = 2000 standard hour

Efficiency ratio =  2000/2700 X100 = 74%

Capacity utilization =  (Total hour spend / Total hour available) X 100

                                 =( 2700/3000)* 100 = 90 %

Labour capacity ratio

The purpose of calculating to identify that at what level the entity operating and how much of the capacity is being utilized. Capacity utilization is important factor because under utilization of capacity is a loss for the entity and specially in case of labour under utilization of capacity means that there are some over employment.

If there is over employment and the money is being paid it technically shows a poor management and the management should review the number of labour required and make appropriate decision in this regard.

The under utilization may also be due to the shortage of demand especially in case of season based industries. Some industries are not willing to reduce the staff due to shortage of demand because losing the employee and hiring again also involve cost moreover it requires training and experience is not an visible option.

Under utilization is possible but over utilization of capacity is not possible unlike efficiency ratio where the over efficiency is possible. Technically saying the answer of capacity ratio would be always equal or less than 100%.

Production volume

Production volume =( Expected Time/ Time Available ) X 100

This ration is basically an further interpenetration of efficiency and capacity ratio and explain what would be the production volume in case of efficient and non efficiency environment. If the capacity is being utilized and it is being utilized effectively then this production volume will show a positive sign if the capacity is being under utilized and efficiently then this production volume will improve.

Simple word it can be said if people are working and working with focus and integrity then you will have good production but if the people are wasting time and not working properly then this will be reflected in production volume ratio.