Efficiency is the level of productivity of an organization. Essentially, it is the ratio of productivity, i.e. the levels of inputs (raw materials) we need to achieve the desired output (finished goods).
So efficiency indicates how well the company is using its resources. The aim is the optimum use of resources by the company. Let us understand a few important terms in relation to efficiency,
- Input: Resources of any kind, example: Human resources, Finances, Raw material, Assets, Machinery etc
- Output: Goods and services produced by the company to meet the needs of the customers
- Quantity: Amount of goods/services produced
- Productivity: A ratio of goods produced to the amount of resources needed to produce them
So an efficiency audit will help the organization measure its efficiency in many ways. There is financial efficiency, technical efficiency, production efficiency etc. Two of the main objectives of an efficiency audit are to make sure that the organisation has
- Optimum utilization of the investments in the organization
- That the organization channels the investment in their most profitable ventures
One thing to understand is that efficiency is a relative concept. So the efficiency of an organization is measured against certain industry standards, a target or the norms. After the audit, the management can then focus on improving its efficiency. The way to do it is to achieve more output from the same amount of input as before.
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