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4.2.1 Analysingoperational performance

AQA Business4 Decision making to improve operational performanceHaribo numbers and factsHow useful are numbers in understanding scale and significance?

How are Haribo Goldbears made?https://www.haribo.com/enGB/company/numbers-facts.htmlhttps://www.haribo.com/enGB/consumer-information/jellies/manufacturing-process.html

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4.2.1 Analysing operational performance

In this topic you will learn aboutInterpretation of operations dataCalculation of operations dataThe use of data in operational decision making and planningOperational dataOperational data allows a business to measure the performance of the operations management functionPerformance can then be compared to quantifiable operational objectivesChanges can then be made to key operational areas to improve the functions performance if necessaryOperational data includes:Labour productivityUnit costs (average costs)CapacityCapacity utilisation

Labour productivity

Measures output per worker

Calculated as:

Total outputNumber of employeesExample:If total output is 100 000 units and there are 2000 workers Labour productivity = 100 000/2000 = 50 units per worker

Labour productivity will be influenced by a number of factors including:Training and skills of the workforceMotivationComplexity of the product

How can labour productivity effect competitiveness?http://www.bbc.co.uk/news/business-33307851UK manufacturers plan increase in investment

4Unit CostThe average cost of producing a single unit of output Calculated as:Total cost / outputExampleFixed Cost = 10 000 Variable Cost = 3Total Cost for 1 000 units = 10 000 + (3 x 1 000) = 13 000Unit cost = 13 000/1 000 = 13.00Targets will be linked to keeping unit cost as low as possible whilst not affecting qualityWhat would be the unit cost if only 500 units were produced?What would be the unit cost if 1 500 units were produced?Unit CostFactors influencing unit costs include:Number of units producedSpreads fixed costsNegotiate discounts with suppliersGreater use of assetsLabour productivityEfficiency of work forceUse of workforce hoursSuppliersCost of inputsMaterial usageWastageHow far will Ryanair go to reduce costs and increase profit margins?http://theweek.com/articles/476632/ryanairs-7-most-ridiculous-costsaving-ventures

6CapacityThe maximum amount of output achievable if all resources are fully utilisedIn the long run capacity can be increased by acquiring more resources e.g. bigger premises, more machinery, introducing a 3rd shiftIn the long run capacity can also be reduced by downsizing resources e.g. laying off workers, smaller premises, less machineryA business will aim to match capacity to demandWhat are the costs and benefits of increasing capacity?How would you increase capacity in a restaurant?http://www.bbc.co.uk/news/uk-scotland-scotland-business-33110881Port of Grangemouth moves to expand container capacity

7Capacity UtilisationCapacity utilisation is a measure of the percentage of potential output being achievedPercentage of seats occupied at a football matchPercentage of t-shirts manufactured Calculated by:Actual output / maximum output x 100Example:The Eden Hotel has 320 rooms of which 250 are occupiedCapacity utilisation = 250 / 320 x 100 = 78%

Why might the Eden Hotel use the services of a business such as lastminute.com to try and fill the vacant rooms?

8Capacity utilisation

Average attendance by club 2014/2015 season.Calculate the capacity utilisation for 3 clubs of your choice.

What are the advantages and disadvantages of high capacity utilisation at football matches?http://www.worldfootball.net/attendance/eng-premier-league-2014-2015/1/9

How useful is this operational data for Ryanair?The use of data in operational decision making and planningOperational data is used to measure performance against predetermined targets

Labour productivityIndication of workforce moraleIs additional training required?Is labour being used effectively?What steps could be taken to increase labour productivity?Unit costsAre average costs rising or falling? Look to change suppliersCan inputs be utilised more efficientlyInform pricing decisionsIs waste being managed efficiently?The use of data in operational decision making and planningOperational data is used to measure performance against predetermined targetsCapacityIs capacity sufficient to meet demand or too big?Should the firm look to increase or decrease capacity?Can demand be altered to make greater use of capacity?Capacity utilisationAre resources being used effectively or are assets being under utilised?Is the sufficient spare capacity to meet targets of flexibility?Can the business take on new customers?Are resources being stretched too much?

Test yourself - 5 minutesEndWhat is the formula for labour productivity?

What is the formula for unit cost?

Distinguish between capacity and capacity utilisation.13

4.2.1 Analysing operational performance

In this topic you have learnt aboutInterpretation of operations dataCalculation of operations dataThe use of data in operational decision making and planning