Effectiveness and efficiency

The effectiveness refers to that ability to achieve the objectives or goals established by a company, business, organization or project, among others.

The main difference between effectiveness and efficiency is that the latter is interested in the control of resources (generally in an economic sense), their correct use and that these are not wasted , to achieve a goal.

In the Spanish language there is no clear difference between these two concepts. The distinction between efficiency and effectiveness was born during the administrative and managerial heyday of the so-called ‘service era’, in the 1980s.

To be competitive (better than the competition), businesses not only had to function, they also had to increase their profit margin . Thus, the good management of resources was summarized as ‘spend less, earn more’.

What is efficacy?

The efficiency refers to the ability to achieve a goal , outcome or desired purpose.

Efficiency is the achievement of a purpose, for example, if a signal transmission equipment is transmitting a signal, it can be said to be effective.

An effective person is also one who meets the objectives set in an objective and quantifiable way.

However, although effectiveness and efficiency are often used interchangeably, it is possible to be effective without being efficient . That is, meeting the objectives without having taken the maximum advantage of the resources or having used extra (unnecessary) resources.

Efficacy characteristics

• It focuses on the objectives or results of a process.
• It is measured in terms of the result obtained vs. the expected result.
• Resources are used to achieve goals.
• He is interested in complying with what is proposed.

Calculation of effectiveness

At the production level, a simple way to calculate the efficiency and obtain its percentage is to take the result obtained in a production process and multiply it by 100. Then, the product of this multiplication is divided by the expected result.

That is, the following operation is performed:

• (obtained result x 100) / expected result.

Example of calculating efficiency

For example, if a factory that manufactures T-shirts aims to produce 1000 T-shirts per day, but in practice produces 1100, the efficiency of this would be equal to 110%:

• (1100 t-shirts produced x 100) / 1000 expected t-shirts = 110% efficiency.

Now, if, on the other hand, only 500 t-shirts can be produced per day, the result would be that the productive efficiency is 50%:

• (500 shirts produced x 100) / 1000 expected shirts = 50% efficiency.

Using this calculation, meeting a target would equal 100% effectiveness. A lower percentage would translate into low efficiency, while a higher percentage would be equivalent to high efficiency.

What is efficiency?

The efficiency is the ability to achieve a goal using the resources without any waste thereof.

Thus, an efficient person is one capable of obtaining the desired result by making the best use of available resources . Efficiency can be subjective and qualitative.

Efficiency, or being efficient, is not only about reaching a goal, but about using those inputs, investment, resources, etc., that generate the best result. What is sought is to minimize costs and maximize results .

This implies solving the problems that affect a process.

However, in the same way that it is possible to be effective without being efficient, it is also possible for a person, company or organization to be efficient without being effective .

For example, a company can be very efficient by producing a new model of smartphone every year, reducing costs from previous periods. But, it can also be ineffective meeting all the quality control objectives of each new model, which the market maintains.

Efficiency characteristics

• It focuses on the process that leads to a goal.
• It measures the relationship between the results obtained and the actual cost vs. the expected results and the expected cost.
• He is interested in doing things well or improving things.
• Seeks the resolution to productive problems.

Efficiency calculation

Efficiency can take into account subjective factors (such as product qualities). However, a calculation can be made of it, considering the resources used (for example, materials, cost or time used).

A simple way to understand how efficiency works is to perform a calculation like the following:

1. The cost incurred is multiplied by the real time.
2. The resulting product is divided with the result obtained.
3. Then the expected cost is multiplied by the expected time.
4. The resulting product is then divided by the expected result.
5. Both coefficients are divided, giving an index higher or lower than 1.

In other words:

• Result obtained / (cost incurred x work time).
• Expected result / (expected cost x expected time).
• Both coefficients are divided and the result shows the level of efficiency.

The higher the index, the more efficient the work or production has been.

Efficiency calculation example

If a factory produces 1,100 shirts in 23 hours for a cost of 0.90 USD, targeting 1,000 in 24 hours, for a cost of 1 USD, the operation would be as follows:

1. 1,100 shirts produced / ($ 0.90 cost incurred x 23 actual hours) = 53.14
2. 1000 expected shirts / (1 USD expected cost x 24 hours expected) = 41.6
3. 53.14 / 41.6 = 1.28 approximately.

In this case, the efficiency has an index of 1.28, which means that indeed the work has been efficient.

On the other hand, if in the same example, the factory produces only 900 shirts in 24 hours at a cost of 1 USD per unit, maintaining the same objective, the result would be the following:

1. 900 shirts produced / (1 USD cost incurred x 24 actual hours) = 37.5
2. 1000 expected shirts / (1 USD expected cost x 24 hours expected) = 41.6
3. 37.5 / 41.6 = 0.9 approximately.

The index is less than 1 , so production has not been very efficient .

The index can also be transformed into a percentage, multiplying it by 100, to be used in the calculation of the effectiveness of the production, together with the result of the effectiveness.

Efficacy, efficiency and effectiveness

In general, effectiveness is understood as the degree to which benefits are maximized, achieved the expected objectives and incurring the lowest possible cost . Basically, when effectiveness is defined, effectiveness and efficiency are generally used as benchmarks.

It can be said that effectiveness, efficiency and effectiveness are a chain of stages to achieve the competitiveness of an employee, machine, team, institution, service or company.

Calculation of effectiveness

One way to calculate effectiveness is to add the percentages of effectiveness and efficiency, dividing their sum by 2.

For example, if the efficiency of the company that produces shirts is 110% (it has met its objectives) and its efficiency is 128%, the calculation of effectiveness would be as follows:

• 110% effective + 128% effective / 2 = 119% effective.

This means that the company has a production level of shirts with a positive or high effectiveness.

If, instead, the same company has been 50% effective and 90% efficient, its effectiveness would be:

• 50% efficiency + 90% efficiency / 2 = 70% effectiveness.

In this scenario, the effectiveness is still below 100% and can be improved.

There are other ways to perform this calculation, for example, translating the percentages into indices, adapted to the particular situation and way of establishing indicators for each company or business.