Cardinal versus Ordinal


What do we mean when we say that a variable is “quantitatively measurable”?We do not necessarily mean that there is only a single way of measuring or scaling it. Temperature is certainly quantitatively measurable, but there are alternative ways of doing so. For example, 320 Fahrenheit is 00 Celsius, and each degree up or down of Celsius corresponds to 1.8 degrees up or down of Fahrenheit. The two scales differ, but only in zero point and unit interval. Similarly, altitude could be measured from sea level or from the center of the earth (shift of zero point) and in feet or meters (shift of unit interval). Both temperature and altitude are more technically called cardinal magnitudes, variables which have the following property: that, regardless of shift of zero-point and unit interval, the relative magnitudes of differences remain the same. In case of altitude, for example, there’s a bigger difference between the heights of the base and crest of Mount Everest than between the ground floor and roof of even the tallest building. This remains true whether we scale altitude in feet or meters or whether we measure it from sea level or from the center of the earth. If people can state that they prefer two million to one million—but not by how much—their utility is said to be an “ordinal” magnitude. Put another way, if Total Utility is an ordinal magnitude we cannot say anything about the  size of Marginal Utility but we can still say whether Marginal Utility is positive or negative.

My Consultancy–Asif J. Mir – Management Consultant–transforms organizations where people have the freedom to be creative, a place that brings out the best in everybody–an open, fair place where people have a sense that what they do matters. For details please visit www.asifjmir.com, and my Lectures.

 

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Measuring Productivity


You are likely to be judged – at least to some extent – by your financial performance. But financial measures such as profitability and return on investment are really indirect measures of the operations, good financial performance comes from good operations. You can measure the operations more directly using measures such as productivity, utilization and efficiency.

Productivity is the most common measure of operations. It shows the amount of output that you create for each unit of resource used. You might, for example, measure the number of units made per employee, sales per square meter, or deliveries per vehicle.

Your competitors are always trying to gain an advantage, and an effective way of doing this is by increasing their productivity. You then have to match their improvement simply to stay in business. So the benefits of higher productivity include:

  • Long-term survival;
  • Lower costs;
  • Less waste of resources;
  • Higher profits, wages, real income, etc;
  • Targets for continually improving operations;
  • Comparisons between operations;
  • Measures of management competence.

These are good reasons for improving productivity. But how can you do it? At the very worst, you simply make people work harder – problem solved. In reality there are four ways of increasing productivity:

  1. Improve effectiveness – with better decisions;
  2. Improve efficiency – with a process that gives more output for the same inputs;
  3. Improve the process – getting higher quality, fewer accidents, or less disruption;
  4. Improve motivation – getting better results from the workforce.

One of the problems with improving productivity is that employees see it as an excuse for sacking them. Productivity is really a measure of improvement performance, and it has very little to do with the old-fashioned idea of getting people to work harder. An enthusiastic person digging a hole with a spade can work very hard, and still be far less productive than a  lazy person with a bulldozer. Typically, 85 percent of productivity is set by the process which is designed by managers and only 15 percent is due to the individual workers.

My Consultancy–Asif J. Mir – Management Consultant–transforms organizations where people have the freedom to be creative, a place that brings out the best in everybody–an open, fair place where people have a sense that what they do matters. For details please visit www.asifjmir.com, and my Lectures.