Deck 12: Measuring Productivity

Question 1

Consider a discretionary cost center or department ( other than personnel services ) and design a set of efficiency and effectiveness ratios to monitor productivity for that cost center or department.

Answer 1

Discretionary Department is a center where there is no direct relationship between output and inputs such that instead of productivity ratios, efficiency ratios are calculated to evaluate the working of these departments.
Some examples of discretionary departments are marketing, personnel, legal, finance, administration, et cetera. Possible ratios for marketing department are listed as follows:
Change in sales of the product or service as a percentage of the cost of a new marketing strategy or advertisement will indicate the efficiency of the department in achieving the sales targets.
The ratio of actual expenditure to the base expenditure on marketing and advertisements is another ratio helpful in studying the cost analysis of the department.
Percentage change in sales over the most recent decade as a proportion of the change in expenditure on marketing during the same period helps evaluating the efficiency over past and gives the areas of improvement.
Costs per hire, average time to fill positions in the department are other ratios helpful in cost analysis of these departments.
Cost of monitoring or managerial cost as a percentage of total costs of the department indicates the management efficiency in the department.

Question 2

WeTypelt, an outsourced medical records transcription company, wishes to see if staff in their Riverside Medical divison has become more productive in the past quarter. The division processes medical records for four specialties at Riverside Medical, including cardiology, infectious disease, gastroenterology, and dermatology. In the baseline period, they handled the following mix of transcriptions:
This year there were 3,200 cardiology, 1,500 infectious disease, 800 gastroenterology, and 300 dermatology transcriptions performed. The total time to perform these tasks was 3,950 hours.
a. Calculate the index of output.
b. Calculate the index of labor hours.
c. Calculate the index of output per labor hour.
d. Calculate the percent change in productivity, and indicate if productivity improved or declined.

Answer 2

Partial productivity ratio :
This ratio compares total output with some specific part of input. It permits management to focus on specific input and its impact and thus to determine the area in which there is a need for improvement. It measures the productivity in terms of physical units
In this, the current data is compared with baseline data of previous period to determine productivity.
Company W has wants to determine productivity of its 4 departments.
The baseline data and data for current year for each department are given.
From above data,
a.
Calculate index of output:
Index of output :
Thus index of output is
This means that the output is increased by 9.4%
as compared to last year (base year).
b.
Index of labor hours :
Thus index of labor hours
This means that the labor productivity is increased by 6% as compared to last year (base year).
c.
Index of output per labor hour :
Thus index of output per labor hours
This means that the labor productivity per hour is increased by 3.2% as compared to last year.
d.
Percentage change in productivity :
The index of output per labor gives clear idea about the productivity. As calculated above, the value of index of output per labor is 103.2%.
It means that the percentage change in the productivity is 3.2%
Thus it can be concluded that the index is above 100%, the productivity has improved as compared to previous year.

Question 3

What are some examples of discretionary cost centers or departments in health care organizations?

Answer 3

Discretionary Cost is the cost which is incurred in the different departments that are indispensable to the organization but does not have definite input output relation which means a definite relation between cost incurred and the value of service does not subsist in such cost. Such costs generally incur every year and represent the amount that clearly depends on the judgment of management which is appropriate under certain situations.
Examples of discretionary department in health care organization are housekeeping, fiancé, security, marketing and legal departments.

Question 4

Suppose that the direct time in a hospital pharmacy was 54,000 hours of labor, and that a study indicates indirect time is generally required to be 33 percent of direct time.
During the year, excluding vacation, holidays, and education time, the laboratory department paid for 80,000 hours of labor. How productive was the department in terms of its total use of direct and indirect costs?

Question 5

What are efficiency and effectiveness? How can these concepts be used to control discretionary costs?

Question 6

The Long Life Nursing Home recently bought new equipment for the kitchen with the hopes of increasing food worker productivity. Based on the cost of the equipment and its lifetime, it has been estimated that the investment will be worthwhile if they can improve productivity by 5 percent.
Last year, before undertaking the purchase, a special study was conducted. Its results indicated that it took 15 minutes to prepare a standard meal, 18 minutes to prepare a low-sodium meal, and on average 24 minutes to prepare meals with other special requirements. Last year, the nursing home prepared 200,000 standard meals; 40,000 low-sodium meals; and 50,000 other special meals. This year, they prepared 170,000 standard meals; 45,000 low-sodium meals; and 60,000 other special meals. The total time for the food workers this year was 76,500 hours. Using a partial productivity ratio, determine if the nursing home achieved the desired 5 percent productivity gain.

Question 7

What are some difficulties related to measuring productivity in the health services area?

Question 8

Can productivity of indirect costs be measured? If so, how? It' not, why not?

Question 9

Distinguish between engineered, committed, and discretionary costs.

Question 10

According to the text, what is the most common measure of productivity?

Question 11

What is the difference between total productivity and partial productivity?

Question 12

How can you determine if the relationship between direct and indirect costs needs to be reevaluated?

Question 13

Why is control of discretionary costs difficult?