Efficiency indicator. What does it reflect?

2024 Author: Henry Conors | [email protected]. Last modified: 2024-02-12 02:41

In a market economy, the performance indicators of an organization are becoming increasingly important. In general, the very concept of "effect" refers to the result of the actions performed. If it acts as the end result of the enterprise, it can be characterized by both cost and physical indicators.

From an economic point of view, the effect is the difference between income and expenses. In the event that there is more income, then we can talk about the presence of a positive effect, or profit. It can occur when production increases or costs decrease. This condition is met with all other parameters being equal. A negative effect indicates unprofitable activity. However, the management of the organization should have an idea of what resources (capital investments) cost to achieve the actual result. It is the comparison of the existing effect and the materials used for this, time costs, raw materials and other elements that serves as the "foundation" of the financial stability and efficiency of the entire enterprise.

Next, a few words about efficiency. It characterizes the degreeachieve the goal of the enterprise with the application of the minimum amount of costs. For this, key performance indicators are used. They are based on the following basic ratios:

• R/C;
• C/R;
• (P-Z)/P, where P is the result and Z is the cost.

A special place is occupied by such an indicator of efficiency as profitability. It can be calculated for products, production assets, labor costs. There is also an indicator of the effectiveness of the use of enterprise resources, fixed assets, working capital, and capital investments.

There is also comparative economic efficiency in the economy. It allows you to find the most profitable option for solving the problem among the available alternatives. It is important to distinguish between performance indicator and criterion. The first indicates the cost of what resources this or that result is achieved. But one measure of performance is not able to tell the whole picture. Then there is a criterion. It is able to characterize the economic efficiency of activity not only from a quantitative side, but also from a qualitative one. At the enterprise level, the level of maximum profit per unit of resources can be taken as a criterion. It reflects the goals of production and their relationship with the costs and income received.

In general, organizational changes, technical and economic measures give results not only in quantitative, but also in qualitative terms, which is why it is important to separate the performance indicatorand criterion. Using each of them allows you to see only part of the "mosaic". It is necessary to consider the totality of all elements, taking into account the existing relationships and dependencies. It is customary to distinguish natural, conditional, and cost indicators. Using each of them has not only positive aspects, but also negative ones, which must be taken into account.