Quiz 12: Measuring Productivity
Discretionary Department is a center where there is no direct relationship between output and inputs such that instead of productivity ratios, efficiency ratios are calculated to evaluate the working of these departments. Some examples of discretionary departments are marketing, personnel, legal, finance, administration, et cetera. Possible ratios for marketing department are listed as follows: Change in sales of the product or service as a percentage of the cost of a new marketing strategy or advertisement will indicate the efficiency of the department in achieving the sales targets. The ratio of actual expenditure to the base expenditure on marketing and advertisements is another ratio helpful in studying the cost analysis of the department. Percentage change in sales over the most recent decade as a proportion of the change in expenditure on marketing during the same period helps evaluating the efficiency over past and gives the areas of improvement. Costs per hire, average time to fill positions in the department are other ratios helpful in cost analysis of these departments. Cost of monitoring or managerial cost as a percentage of total costs of the department indicates the management efficiency in the department.
Partial productivity ratio : This ratio compares total output with some specific part of input. It permits management to focus on specific input and its impact and thus to determine the area in which there is a need for improvement. It measures the productivity in terms of physical units In this, the current data is compared with baseline data of previous period to determine productivity. Company W has wants to determine productivity of its 4 departments. The baseline data and data for current year for each department are given. From above data, a. Calculate index of output: Index of output : Thus index of output is This means that the output is increased by 9.4% as compared to last year (base year). b. Index of labor hours : Thus index of labor hours This means that the labor productivity is increased by 6% as compared to last year (base year). c. Index of output per labor hour : Thus index of output per labor hours This means that the labor productivity per hour is increased by 3.2% as compared to last year. d. Percentage change in productivity : The index of output per labor gives clear idea about the productivity. As calculated above, the value of index of output per labor is 103.2%. It means that the percentage change in the productivity is 3.2% Thus it can be concluded that the index is above 100%, the productivity has improved as compared to previous year.
Discretionary Cost is the cost which is incurred in the different departments that are indispensable to the organization but does not have definite input output relation which means a definite relation between cost incurred and the value of service does not subsist in such cost. Such costs generally incur every year and represent the amount that clearly depends on the judgment of management which is appropriate under certain situations. Examples of discretionary department in health care organization are housekeeping, fiancé, security, marketing and legal departments.