3.4.2 - Analysing operational performance

Question 1

What does operations data show?

Answer 1

How well a business is performing:
- To identify problems and possible causes
- Analysing business performance
- Analysing employee performance.

Question 2

What is labour productivity?

Answer 2

The output of products/services per employee.

Question 3

How is labour productivity calculated?

Answer 3

the total output of a business/ number of employees

Question 4

How are unit costs calculated?

Answer 4

Total costs/ number of units

Question 4

What are unit costs?

Answer 4

The cost per unit produced.

Question 5

What is capacity?

Answer 5

The maximum output of a business at a moment in time given its resources

Question 6

What is capacity utilisation?

Answer 6

The existing output over a given period as a percentage of the maximum output.

Question 7

How do you calculate capacity utilisation?

Answer 7

(Current output/maximum output) x 100

Question 8

How can a business improve its labour productivity?

Answer 8

• Increase number of staff working
• Use more efficient machinery
• Increase staff motivation (e.g bonuses and staff rewards)

Question 9

Why is labour productivity important to a business?

Answer 9

• It allows businesses to be flexible
• It improves business efficiency so it is able to achieve economies of scale.

Question 10

How can a business reduce their unit costs?

Answer 10

• making workers redundant
• being more efficient so less resources are wasted
• Economies of scale (bulk buying)
• Switch supplier and supply products to cheaper alternatives
• Increase output/productivity

Question 11

What is beneficial about analysing operational data?

Answer 11

Managers can identify problems or opportunities so this informs their decision making and planning.

Question 12

Explain why low productivity may lead to low profit margins.

Answer 12

Low productivity can cause diseconomies of scale and the output is lower so unit costs are higher as fixed costs are less spread across products.

Question 13

Explain why subcontracting may be better than investing in new equipment to meet demand.

Answer 13

Subcontracting avoids a large investment cost which demand may decrease in the short term due to a lack of quality.

Question 14

Explain why a poor marketing strategy could cause spare capacity.

Answer 14

A poor marketing strategy would cause a decrease in overall market demand/ a decrease in the market share of the business so less products are output.

Question 15

Explain why high capacity utilisation can improve a firm’s competitiveness.

Answer 15

A high capacity utilisation reduces the overall unit costs of a business so the business can offer lower prices to consumers, thus making them more competitive.