After reading this article you will learn about Productivity Audit:- 1. Meaning of Productivity Audit 2. Problems of Productivity Audit.
Meaning of Productivity Audit:
The term productivity, if simply put, may be ‘output’ divided by ‘input’. ‘Output’ may mean goods as well as services and there is no simple way of totalling them because goods may be expressed in quantitative norms whereas the services cannot be expressed that way. For ‘input’ we may come across diverse factors, such as men, materials, machines, land, capital, energy, organisation and a host of others.
Thus, each of these factors or elements comes within the arena of productivity audit, and for overall productivity audit, factorial productivities’ audit is necessary. Physical productivity audit contains an element of productive ‘efficiency audit’. Productivity, in physical terms, is also conditioned by efficiency and activity in relation to time.
A critical examination of Efficiency Ratio, (that is, actual production in terms of standard hours to actual hours worked) and ‘Activity Ratio’ (that is, actual production in terms of standard hours budgeted production in terms of standard hours) may also form the content of productivity audit.
The concept of productivity is rooted in the production function but that does not mean that the audit of production function is productivity audit. The audit in which the standards, the yardsticks for measurement and comparison, and the actual factor-performances are (in physical or monetary terms) subjected to closer scrutiny and evaluation may be understood as the core of productivity audit.
Problems of Productivity Audit:
The overall productivity, being the result of a contribution of different elements or factors, (such as—labour, raw materials, components, plant, machinery, organisation and management etc.) it has to be evaluated by paying due importance and attention to the results obtained out of these individual factorial productivities.
Thus, productivity audit has to take care of and pay due consideration to these factorial inputs for measurement and evaluation.
Broadly speaking, the following limitations or problems are associated with productivity measurement:
(1) Factorial inputs have got different units or yardsticks of measurement.
(2) Inter-dependence of the different inputs and their integrated nature of work for the common final aim of productivity measurement. That means, labour productivity, machine productivity, material productivity, productivity of management and organisation function are closely inter-woven and inter-related.
The quality of equipment and degree of mechanisation influence labour productivity; satisfactory conditions of work and process and factory layout which form a part of general organisational efficiency influence labour productivity; the education and skill of the operators have an impact on machine productivity; machine efficiency and productivity depends on material specification and quality; use of standard materials or prefabricated components makes a contribution towards labour productivity, and the organisation and general efficiency of management condition all other inputs and factorial productivities.
These inter-dependent functional relations of factorial productivity can be conceived of as a series of simultaneous equations with different variables. These variables are not only numerous but also their mutual relationships are difficult to be precisely quantified, and thereby mathematical solution is almost an impossibility.
(3) As a corollary to the above, the solution of the series of simultaneous equations, even if done by a computer, becomes somewhat of a subjective process. A unique mathematical solution is difficult to be worked out to the entire satisfaction of an auditor.
(4) An acceptable base for productivity comparison to ascertain productivity increase or decrease is difficult to determine, and audit in that sense considers subjective criteria.