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What Is Operational Efficiency in Business?

Nov 16, 2021 8:53:00 PM / by Taylor Faircloth

operational_efficency

If you are the owner of a business, either big or small, maximizing your company’s income and having the work run as efficiently as possible is likely foremost among your concerns. 

If that is the case, you may be thinking about your business’s operational efficiency without even realizing it. Putting business language aside, lowering the cost of a business’s day-to-day operations, and optimizing workflows are core tenets of operational efficiency. 

Now is when you might be wondering what operational efficiency is, how it can affect your business, and how you might improve it going forward. Here, we will do our best to explain both the concept and how to use operational efficiency to your advantage.

Operational Efficiency Defined

In its simplest terms, operational efficiency measures how much work you and your business can produce in a given time weighed against how much money it costs to create that work.

Generally speaking, regardless of what product or service you are offering, your business has good operational efficiency if you can produce a high amount of it while keeping the costs of production low. Inversely, if the amount of money it takes to deliver a service is equal to the amount gained, your operational efficiency is considered to be relatively poor.

 While the two concepts might sound similar at first, operational efficiency means something slightly different than the idea of general productivity. Productivity in a business sense primarily involves how much of a product or service you can produce. In other words, it concerns not so much the cost it takes to make said product or service but, rather, the measurable volume of one thing you have made.

Operational efficiency is more concerned with specific profit margins rather than general production. For example, producing less of a service might look bad through the lens of the overall output. Still, if that service was delivered cost-effectively, it bodes well for operational efficiency.

How Operational Efficiency Affects You

Managing the overall efficiency of a business can be the difference between a thriving company and a struggling one. Most business owners know that first-hand, but not everybody considers the full extent of what efficiency means in a business setting.

While minimizing workplace distractions and keeping a tight, orderly personal schedule might be among the first thoughts when considering efficiency in general, they also play a significant role in operational efficiency from a financial perspective. 

To be sure, those principles of business efficiency will impact a company’s overall production, but only operational efficiency is designed specifically to shift a company’s gross income. 

Think about it. A business can work hard to produce at a higher level, but if the dozens, if not hundreds of factors that go into making a product or service have reached an untenable cost, that extra effort placed into production will not bear fruit financially. 

Therefore, it is essential to think about the ways that you can work smarter within your business.

How to Improve Operational Efficiency

The art of improving a business’s operational efficiency is a delicate balancing act, and good business managers are wise to handle it carefully. 

While creating a lower-quality product or service with worse tools, materials, or resources would cost less, this is simply unsustainable for a business. And while the cost of production would go down, so would the profits received, thus maintaining low operational efficiency. However, smart strategies can be put to use to help improve operational efficiency the right way.

  •     Time Management: This applies not only to your employees but also to yourself. Taking careful consideration into managing your overall work schedule can reap massive benefits for a business’s operational efficiency. For example, promoting a culture in which nobody is overworked and scheduling an employee’s specific sessions during optimal hours of the day can help improve a company’s overall work ethic, increasing the quality of service and even production.
  •     Clearly Defined Goals: The efficiency of a company will only increase if everyone in the business is on the same page. Taking the time to write checklists of short- and long-term goals will help you and your employees approach their work with purpose and a clear idea of what to accomplish.
  •     Investing in the Proper Tools: Operational efficiency is all about doing the job correctly to maximize profits within a business. Whether that means improving the quality of materials or upgrading to new software, having the right equipment can increase the value of a product and even a business’s overall workflow. At Chekhub, we specialize in operations management software, with tools for managing employee calendars, creating company-wide checklists, and more to help you increase your business’s operational efficiency. 

To learn more about Chekhub and our operational management tools, schedule a demo.

Tags: Insights

Taylor Faircloth

Written by Taylor Faircloth