Defining efficiency

What is efficiency?

Efficiency does not mean simply cutting expenditure. To explore this, it is worth considering the definition of efficiency and its component parts, inputs and outputs.

Efficiency is a measure of how well an organisation uses its inputs to produce its outputs.

Inputs incorporate all the resources used to produce goods or deliver services. These may be human and financial, as well as the use of assets e.g. office space.

Outputs are the goods produced or services provided by an organisation. Crucially, outputs should be measured for both quality and quantity. The quality of outputs is often harder to determine than their quantity. However, with the correct techniques, quality can be measured by considering factors such as the reliability, accuracy and timeliness of outputs.

When is an organisation more efficient?

At its simplest, an organisation can be more efficient if it produces:

• the same outputs from less resources
• better outputs from the same resources

Taking the example of a hospital, if the quality of care offered to patients remains the same despite a reduction in its budget, the hospital would have become more efficient. In the Government’s Efficiency Programme, such reforms are referred to as cashable efficiency gains as cash can be released to other areas of public services.

Alternatively, if the hospital’s waiting lists were reduced while using the same level of resources, all things being equal, the hospital could be considered more efficient. This type of reform is a non-cashable efficiency gain since no resources can be redeployed elsewhere.