Added-value is basically the average proportion productivity of your sales – the dissimilarity among the worth you sell at and the price to you usually before bearing in mind the overheads. Added value corresponds to the net output as shaped by a venture or the actual result ascribed to the factors of manufacture within the company. It also designates the degree of accomplishment of collaboration and labors by the various parties involved in the production process. The higher the figure the better it is. In general, rising added-value per employee is positively suggestive of the rising productivity.
Again it is the trend over time that is essential in consideration. A moribund figure usually point towards plummeting productivity and or payroll costs moving out of line. Businesses should struggle to make the most of added-value per employee – this is necessary to make the most of earnings.
The general formula for the Value added per employee is operating profit added to salaries, wages and payroll expenses and then divided by the average number of employees.
Value-added productivity measurement is a capacity tool to establish the productivity performance of an organization. It facilitates the organization to recognize precedence areas for development and to set up organization wide productivity pointers based on Value Added.
The VAPM ratios are a grouping of five profitability and five productivity ratios. A vertical study of the five profitability ratios shows that an augment in profitability is attributed to the increase in profit and Value Added per dollar of sales or revenues generated. This is important as it reproduce the ability of the organization to augment the making of Value Added to cover fixed costs and profits. This would mean effectual, competent management of variable and inventory costs and improved operation of fixed assets (For example, machines and equipment).
Utilizing results of VAPM for productivity improvement
The thorough analysis of the result of the examination can hint the management to use the productivity indicators accordingly to plan for sustained productivity development for the expansion and progress of the organization. VAPM results can be straight away utilized for formatting the optimum figure of employees and formulating a Value Added management plan to help the association generate higher Value Added.