Operational efficiency

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In a business context, operational efficiency is a measurement of resource allocation and can be defined as the ratio between an output gained from the business and an input to run a business operation. When improving operational efficiency, the output to input ratio improves.

Inputs would typically be money (cost), people (measured either as headcount or as the number of full-time equivalents) or time/effort. Outputs would typically be money (revenue, margin, cash), new customers, customer loyalty, market differentiation, production, innovation, quality, speed & agility, complexity or opportunities.

The terms "operational efficiency", "efficiency" and "productivity" are often used interchangeably. An explanation of the difference between efficiency and (total factor) productivity is found in "An Introduction to Efficiency and Productivity Analysis".^[1] To complicate the meaning, operational excellence, which is about continuous improvement, not limited to efficiency, is occasionally used when meaning operational efficiency. Occasionally, operating excellence is also used with the same meaning as operational efficiency.