Measuring Efficiency

As discussed in an earlier post, efficiency can generally be conceived of as the ratio of the output to the input of a system. So how do you measure that, and why would you want to do so?

Basically, the way to measure efficiency is to link resources to results, whether that result is an output or an outcome. Obviously, if you start linking final outcomes directly to resources, your model is going to be somewhat questionable, but what you may want to try to do is measure how much resources it takes to maintain a certain level of achievement of a lower level outcome. What am I talking about?

Take for example the outcome of client satisfaction. A lower-level outcome could be customer satisfaction with telephone support. An indicator of that could be call wait time. Ok, now, say you set a target of 2 minutes (this could be a service standard), how many employees do you need on the lines to keep call wait times within that target? So in the end, to link the result to the resources in this case, you’ll need to measure at least 3 things in order for it to be meaningful: the call wait time, the number of employees answering calls, and the number of calls. At some point, by looking at historical data, finding trends and building forecasts, you should be able to get a pretty good idea of how many employees you need to answer calls at different times of the year, to stay within your target call wait time. Ok, that was a pretty complicated example, and the analysis should go further because there are costs involved in adding and removing staff.

But here are more simple examples of efficiency indicators:

• Average number of hours per file
• Average number of days to staff a position
• Average cost of a staffing process
• Average cost per unit (i.e., production lines)
• Total value of sales per month per salesperson
• Server up time
• Number of units produced by machine 4 per week

As you can see, you can link different types of outputs or outcomes to different types of resources (time, employees, funds, etc.). However, one of the main weaknesses of efficiency measures is that they do generally assess quality. For example, if it takes 5 hours on average to review a file, but a lot of mistakes are made, or steps are skipped to reduce the time required, then you just created a perverse indicator, or perverse incentive. The lesson? Balance efficiency measures with measures of quality.

Why would you want to measure efficiency? To optimize the use of limited resources.