Operational efficiency is a metric that looks at the efficiency of profit margins in comparison to operating costs. Looking at operational efficiency can help companies identify where they can decrease operating costs and thereby improve profit. As part of improving operational efficiency, a company should look for any obstacles or inefficiencies that hinder processes. For example, if a manufacturing company is trying to find the most cost-effective solution to a problem, they can look at the operating costs associated with the issue. If they find that there is a large amount of waste produced while making a new product, they could look at ways of eliminating waste in order to improve operational efficiency. By finding a way to repurpose the waste, or to cut down on the amount of waste produced, they are spending less money on wasted material and thereby improving profits.
Operational efficiency is used as an effective measure around appraising profits. When considering a goal of improving operational efficiency, a company should make sure to look at the larger picture. This means that they should not only look into the sales or manufacturing of products/services, but also the costs around the efficiency and productivity of employees, or the costs associated with physical locations they occupy. Ensuring that high quality workers are being properly utilized can help reduce errors and speed up processes that might otherwise take longer. When determining how best to optimize profits, organizations must ensure that they are considering all aspects of operating costs.
Operational efficiency can benefit companies in a variety of ways, including: