Article 1 “A Simple Method to Link Productivity to Profitability”
The article mainly describe about the APC (American Productivity Center) method which links the productivity to profitability. It is a nearly perfect method for performance evaluation on revenue generating organizations – both public and private. Using the APC method, we can drive to conclusions which will lead us to company evaluation and generate the necessary solutions to improve the performance.
The APC model can be easily implemented using Microsoft Excel spreadsheet which is very popular spreadsheet and user friendly. APC method is the system that can easily evaluate current period performance of the company by comparing it to a particular period data which always being used as the standard basis. To produce an APC method report we need o find the performance index and performance result in dollar. To calculate the performance index, several formulas is required: productivity index (quantity change ratio of total output divided by quantity change ratio of input), price recovery index (price change ratio of total output divide by price change ratio of total input) and profitability index (value change ratio of total output divided by value change ratio of total input). Next, performance measures in dollars would be more appealing to managers than the indexes. The dollar contributions can be calculated as follows: productivity contribution (quantity change ratio of total output – quantity change ratio of input), profitability contribution (value change ratio of total output – value change ratio of total input), and price recovery contribution (profitability contribution – productivity contribution). The measurement system let the company to keep track of changes in productivity and price recovery and their impact from period to period.
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