productivity_wordcloudWhy Productivity Measurement?

Productivity improvement is one of the most important drivers for growth and success. To be able to sell more products (or simply to stay in business), organizations wish to lower the price of their products and services, while the profit margins remains the same or increases. As the most important cost driver for software projects is labor, it is crucial to make sure that labor productivity increases through time. Productivity measurement, and management, is a crucial management activity for all software companies and departments!

 

Labor Productivity

Productivity is one of the most important economic terms around. While often goods and services are bought by comparing the price, the underlying concept of productivity, together with the cost per labor hour, drives the price.  As Effort hours are the main input variable for most software projects, this page focuses on labor productivity, the number of output units produced per input unit (effort hour).

Wikipedia (07/2014): Labor productivity is the value of goods and services produced in a period of time, divided by the hours of labor used to produce them. In other words labor productivity measures output produced per unit of labor, usually reported as output per hour worked or output per employed person.

Differences in productivity can easily outweigh differences in hour rate, which means that companies offering the lowest hour rates may not be the cheapest one and also the company with the highest hour rate may not be the most expensive one, when it comes to producing software. Productivity measurement (together with benchmarking) is therefore a critical activity for all software companies.

Productivity related to software projects

Functionality offered is a an important variable in the competitive struggle between companies nowadays. For instance, banks that don’t offer the possibility to their customers to see their account balance and transaction details online, or on a mobile app, are likely to lose customers to competitors who do offer this functionality.

In the end, all organizations want to offer as much functionality as possible against the lowest cost possible. The internal IT department and/or the IT suppliers of a company deliver functionality against a certain cost. Companies that are able to achieve best-in-class productivity rates are likely to get a competitive advantage. In the industry, it has been observed that best-in-class IT departments deliver software up to 30 times more productive than worst-in-class IT departments. A well-known saying is ‘You can’t control what you don’t measure’, which is often used as ‘You can’t improve what you don’t measure‘. Measurement is the first activity you need to do when you want to control something, manage something or improve something. If you wish to become more productive, e.g. produce the most functionality against the lowest cost, you simply have to measure!