Trade Finance Advice

operational efficiency

In a business context, operational efficiency can be defined as the ratio between the input to run a business operation and the output gained from the business. When improving operational efficiency, the output to input ratio improves. Inputs would typically be money (cost), people (headcount) or time/effort. Outputs would typically be money (revenue, margin, cash), new customers, customer loyalty, market differentiation, headcount productivity, innovation, quality, speed & agility, complexity or opportunities. The terms “operational efficiency”, “efficiency” and “productivity” are often used interchangeably. An explanation to the difference between efficiency and (total factor) productivity is found in “An Introduction to Efficiency and Productivity Analysis”. To complicate, “operational excellence” which is about continuous improvement – not limited to efficiency – is occasionally used when meaning operational efficiency. From time to time “operating efficiency” is also used with the same meaning as “operational efficiency”.

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