How to Measure Employee Efficiency

A team that delivers high-quality work is a valuable asset to any business. And measuring employee efficiency is the best way to ensure consistent, top-tier work is happening.

With the proper data, managers can provide additional training to improve work efficiency and reward individuals for exceptional performance.

This article provides insights businesses can use to create an employee efficiency measurement strategy. Let’s begin by talking about the difference between productivity and efficiency.

Productivity versus efficiency

Measuring productivity and efficiency helps businesses gain deeper insight into how work patterns impact profitability. There are distinctions between the two concepts, so note these differences between productivity vs. efficiency before measuring either of these variables.

Productivity is about raw output. Measuring productivity indicates how much work is completed. Productivity asks, “how many widgets did we ship?” It does not measure underlying costs associated with performance.

Efficiency is about optimal output. Efficient teams and processes complete the right amount of work at the right quality and at the right specs. Rather than looking only at the number of completed tasks or products, efficiency asks, “are the number of widgets we ship the right amount for our budget, team, and processes?”

Managers who are thinking about efficiency must consider other factors besides completed work. Is there a certain level of output required to accomplish tasks in the correct amount of time? Do employees have to re-do tasks to get the job done right? How much is the company wasting because of inefficiency?

As stated, productivity data provides a snapshot of employee performance, while efficiency KPIs deliver a more in-depth view that considers quality, waste, training, and strategic workforce management.

Types of efficiency

There are two primary workforce efficiency categories: static efficiency and dynamic efficiency. To truly improve employee performance, keeping an eye on both is essential.

Dynamic efficiency

Dynamic efficiency (DE) metrics monitor processes and product development. Measuring DE is a great way to spot emerging opportunities for improving profitability. These key metrics should inform new service offerings and hiring decisions.

Static efficiency

While dynamic efficiency considers new product development, static efficiency relates to modifying existing products and services. For example, based on customer feedback, a company may change the size or shape of current offerings. Employers also use static efficiency metrics to modify workflow patterns, inform scheduling decisions, and identify opportunities to improve existing training programs.

How to calculate employee efficiency

Calculating an employee’s efficiency ratio involves determining the time spent focusing on work, not the amount of time an employee is on the clock.

Below are examples of formulas for calculating productivity ratios and individual efficiency ratios. The first metric defines performance, while the second has an efficiency score.

For this example, assume a book reseller requires each employee to package five orders per hour. Also, let’s assume that a team member’s typical shift is eight hours long. In this case, the team member spends two hours each day on other activities, such as paid breaks, lunch periods, training new employees, and additional time away from their workspace.

Employee efficiency formula

Here’s the formula used to get the productivity ratio which only measures output:

30 orders (accomplished) divided by 40 orders (the target goal) = 75% (productivity ratio)

Based on this productivity formula, the employee should be able to process 25% more orders each shift.

As we described earlier, productivity scores don’t give us the complete picture. Here’s the formula used to get the efficiency score:

8 hours (scheduled shift) – 2 hours (non-productive hours) = 6 hours (75% of scheduled hours)

When you factor in other details about the employee’s workload and non-work elements, the individual employee is meeting the target goal — great work!

We can see that efficiency ratios factor in the amount of time it takes to complete tasks, plus other factors that impact the level of productivity. See how it makes sense to look at efficiency, not just productivity?

Expecting higher productivity over efficiency isn’t good management. Is it worth having more books in packages, but you’re dealing with high turnover because your employees aren’t getting enough training or breaks?

Plus, using a faulty productivity or efficiency formula to establish benchmarks means decision-makers are not getting an accurate snapshot of the team member’s achievements. An extremely efficient employee may not hit specific shipping goals because they’re doing other essential things that keep the business afloat. Consider all the variables when examining a team member’s work.

Why measure employee efficiency?

Measuring employee efficiency is about getting deeper insights that tell the whole story of a system or process. Just because some team members produce more than others doesn’t necessarily mean they contribute to a high-quality workplace or an effective and efficient team performance.

If you’re a leader or manager, you’ve got to realize that achieving 100% isn’t always within an employee’s control.

Take customer service, for example. To meet client needs, customer support must be dynamic and flexible. Sometimes, customers keep agents on the phone longer than anticipated because they have an unusual situation.

You never know why a customer calls and keeps a support team member on the line. Maybe they’re canceling service because they’re sick and need to save money — and their phone call to a support agent turns into a listening session about a stressful life situation. You might win a customer back simply because the person they talked to was kind and polite.

An example of employee efficiency

Let’s look at another example: small businesses where people wear multiple hats and rapidly switch between projects, making it hard to do productivity hacks like task batching. It’s hard to remain focused on one thing if you’re doing payroll, getting interrupted by phone calls, and then needing to prepare a proposal for a client meeting that just got moved forward on your calendar.

Sometimes the work environment may not be ideal. For instance, a workflow may be hindered due to inefficient workspace design that requires people to leave their workstations to collect incoming faxes or make copies.

Most company leaders establish productivity benchmarks and target goals based on their company’s priorities. But, project management goals may sometimes differ from overall company goals. Even departments within a company may have different goals.

For example, accounting may be more concerned about metrics related to profit margins, while company leadership may care more about productivity goals. In contrast, the day-to-day management and HR might focus more on efficiency and employee happiness.

The bottom line is that measuring employee efficiency can lead to higher employee engagement and longer retention. Efficiency measures will help companies allocate human resources appropriately to increase their overall and long-term goals.

How to measure and track employee efficiency over time

Knowing what is happening within an organization during a specific time period is a great start. However, the real benefits of measuring and tracking employee performance data require a longitudinal approach. 

Tracking employee efficiency over time is not complicated when you are organized.

Follow the four steps below to create an employee efficiency plan.

1. Establish baseline data standards

The first step in creating a workforce efficiency measurement plan is establishing standards.

Planning can be the most challenging part of the process for many managers. You’ll need to create a separate factor for every position and every project, ensuring goals, objectives, and reasonable expectations for all team members exist.

Further, every task should have unique target goals and metrics you plan to track and measure. Some example data points to include are:

• Usual work hours per week — are you calculating how long it takes to complete projects and tasks and have enough lead time to figure out overtime needs?
• The number of revisions each project needs before being completed — what does this indicate about gaps in training?
• How often is an email opened before being answered — are documentation, support articles, or FAQs accessible or helpful?
• The employee absenteeism rate — are employees given enough vacation or sick time? Is it easy for team members to request time off?

2. Track employee time

When companies use time tracking for employees, the metrics gleaned provide KPIs and real-time visibility into how efficiently individuals and teams perform their tasks. An ideal system will collect data for in-house and remote teams.

Key metrics businesses might gather include:

• Clock in and clock out times
• Time spent on non-work activities, such as checking personal email and social media sites
• Overtime hours worked
• Typical daily schedule
• Percentage of work completed within a target range
• Number of time off requests
• Keystrokes
• Time spent on assigned tasks
• Errors, editing, and QA rejection rates

3. Track quality of work

Using a formula to measure the quality of work is more nuanced. Quality is subjective. There is not a single formula for all business models that accurately measures business-specific targets. However, some metrics can at least help you draw inferences about your quality levels. Measure components such as:

• How many products pass QA inspection, and how many fail
• The number of complaints filed against an individual (for example, comparing positive and negative customer reviews to total calls completed)
• Employee engagement and satisfaction rates
  • Using eNPS (Employee Net Promoter Score) and 360-degree feedback surveys give companies helpful insights
• Realized project value (RPV), which qualifies a team’s efficiency ratio as acceptable or unsatisfactory
  • Calculate the RPV by dividing the percentage of work completed by the approved or working project budget
  • While many use this formula to measure productivity, a project that runs over budget from the get-go may also indicate efficiency problems

4. Calculate efficiency over time

Calculating efficiency over time is simply figuring out which employees and processes produce the highest value for an organization in the least amount of time. Using the formulas in this article allows companies to capture a snapshot of efficiency at any given time with productivity metrics.

Proactively monitoring workforce performance indicators longitudinally, over many months or years, should show that efficiency ratios improve as companies retain high-performing employees, improve processes, and offer an environment of growth.

Improving efficiency starts with identifying obstacles to meeting quality and production volume targets.

Here are four ways companies use time tracking and efficiency ratios to improve efficiency over time.

1. Improve retention rates using digital timesheets and other automatic time tracker tools to inform scheduling decisions and human resource allocation.

• Benefit: You’ll have the right team members scheduled for the right times and the right number of hours.

2. Use quality control measures that effectively identify and correct workflow inefficiencies.

• Benefit: Internal changes that empower team members to reach benchmarks may be as simple as increasing or reducing the number of calls each worker is assigned in a call center based on performance indicators.

3. Hire managers that know how to engage and connect with employees to improve worker satisfaction.

• Benefit: Engaged employees have fewer workplace safety incidents and lower absenteeism rates.

4. Incentivize positive employee behavior with bonuses, PTO, and raises when appropriate.

• Benefit: Offering employees a reason to do the job right the first time is a proven strategy for improving production output and quality.

Tools for measuring and improving employee efficiency

Fortunately, there are dozens of time management devices and apps to help improve employee efficiency and individual employee performance.

If you’re just starting, you can use paper-based tracking systems and spreadsheets as project management strategies. (Download some of our free timesheet templates and free management templates.)

When you’re ready to upgrade, workforce time management systems that include various automation tools and time tracking features are cost-effective solutions that deliver a birds-eye view of the overall productivity within an organization.

An ideal time tracking solution makes collecting and analyzing performance indicators and productivity metrics easier than manual systems.

Automated systems will also include features that allow managers to set goals, manage workflows, and address problem areas to improve working conditions for team members.

Optimizing project management and employee workloads will improve both employee productivity and efficiency. Hubstaff is an excellent time tracking and productivity tool companies can use to measure employee efficiency.

No matter how large or small your team is, Hubstaff can help you achieve your goals. Request a demo to see how our time tracking software can increase your team’s efficiency.

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