# A Measure of Productivity: How does your department rate?

A Measure of Productivity

How does your department rate?

By Bill deDecker

July 1999

Lately, much has been written in the media about rapid improvements in productivity driving much of the current economic boom. Increased productivity is a powerful force in any business, because it allows higher output and/or higher profits, without a corresponding increase in cost. Which leads to a couple of questions: Do you track productivity in your maintenance department? And if you do, what do you track?

Let's look at some useful productivity measures. But first, what exactly is productivity? In simple terms, productivity measures the relationship between the output of an organization, person or process and the required input. The best measures of productivity are easy to calculate, easy to explain and are relevant to the success of the organization.

For example, one of the most common measures of productivity is annual revenue per employee. This measure focuses attention on one of the foundations of financial success for any commercial organization (revenues) and relates it to the people (and the implied costs) that create the revenues. Total annual revenues are easy to measure, as is the number of employees. Thus, it is relevant, easy to calculate, and easy to explain. For example, assume an organization with 18 employees has annual revenue of \$2,500,000. This would yield a ratio of \$138,900 of annual sales per employee. It is interesting to note that the annual Survey of Operating Performance, published by the Helicopter Association International (HAI) shows that average annual revenues per employee for all commercial operators is about \$128,000. However, the variation is from a low of \$97,000 to a high of \$171,000 per employee. American Airlines, according to their latest annual report, has annual sales per employee of \$165,000.

There are a number of ways to use this information. One way to use it is to benchmark your organization against other organizations (as shown in industry surveys or annual reports). This will show how your operation compares with your peers. Another way is to calculate this productivity measure for previous years, to see how productivity has changed. Consider the following examples.

Case #1 shows a real problem. Productivity is stagnant and since each year expenses increase and wages go up, this organization has been falling behind. Case #2 shows growth in productivity, but when you analyze it, you'll see that all they do is keep up with inflation (about 2.5 percent per year). In fact, Case #3 is the only one that shows solid growth — the employees are becoming more productive. And, if these were three operators at the same airport, there is a good probability that in a few more years, the organization represented by Case #3 will be the big one on the field that dwarfs the other two.

Once you've examined this productivity ratio for the whole organization, you may also want to calculate the corresponding number for each of the services offered by your organization and compare these with the average. For example, you may find the following:

8
6
4
18

In other words, line service has the most employees and produces the least revenues on a comparable basis. Thus, it drags down the overall profitability of your organization. That by itself should be cause for concern and some serious attention. But, now consider where you'll put your limited resources when there is an opportunity to either expand line service or overhauls. With this key piece of productivity information it will be a lot easier to make the decision.

Another way to use this information is when the supervisor of the maintenance shop says, "We just gotta have another technician!" Often, the only question asked by the manager is "Well, do you have someone in mind?" (I know, I've been there and done that). The real question that should be asked is "Okay, but where is the additional \$167,000 in revenues to support this person going to come from?" This ties the decision to hire another person directly to the revenues needed to pay the salary, benefits, shop supplies, supervision, etc. If this is not done, the addition of the extra person will make life in the maintenance shop easier, but it may drag down the productivity of the department and decrease the profitability of the organization.

A second popular measure of productivity that is also applicable to corporate operators is flight hours per year per employee. For the maintenance department in a flight operation, a variation of this productivity measure is flight hours per maintenance technician. In all cases, this measure is very relevant, because it relates the source of income (commercial operators) or the reason for being (corporate flight departments) to one of the primary fixed costs associated with aircraft operations. For example, according to the 1997 Survey of Operating Performance published by the Helicopter Association International, commercial helicopter operators average 107 flight hours per employee. However, this productivity measure varies from a low of 90 to a high of 163 flight hours per employee. In other words, some organizations are a lot smarter at getting productive work out of their employees than others get. And you can bet that the ones with the high flight hours per employee will be tough to compete against.

A third productivity measure worth tracking is "hands-on" maintenance hours per year per technician. In a commercial operation, these are the hours that can be billed to the customer. This is important to measure because the cost of technicians is the same, no matter how many "hands-on" hours they work. For example, assume that the salary plus benefits for a typical technician is \$40,000. At \$55 per billable hour, the technician has to work 727 hours to cover the salary and benefits. Any hours above that can be used to cover overhead and provide a profit. Again, it is clear that the more "hands-on" hours each technician produces the higher the likelihood that the operation is efficient and productive.

The list of productivity measures is limited only by your desire to understand what is really happening with your organization. The important thing to remember is that productivity focuses attention on the fact that if you track productivity, you'll have a much better understanding of where your organization is headed. And you'll be making your contribution to the headlines about productivity increases sustaining the economic boom!