2.4.2 capacity utilisation

capacity utilisation

• measures how much of a businesses total production capacity. is actually being used

• calculated as = current output/maximum output x 100

total production capacity

• the maximum amount a business can produce in a given time period, assuming all resources are fully used

• key factors: staffing levels, machinery & equipment, space & facilities, operating hours, supply of materials, legal or safety limits

why capacity utilisation matters

• helps identify efficiency

• impacts profitability

• guides staffing, investment, and pricing decisions

over utilisation (above 100%)

• when a business operates beyond its maximum capacity

• pros: maximises short term output, reduces unit costs (temporarily)

• cons: quality may fall, staff may burn out, equipment wears out faster, poor customer service possible

under utilisation (below 100%)

• when a business is not using all its available capacity

• pros: room to grow without extra investment, easier to maintain quality and service, less pressure on staff and resources

• cons: higher unit costs, wasted resources, lower profitability

how to improve capacity utilisation

• adjust staffing and shifts

• increases marketing to boost demand

• outsource or lease excess capacity

• offer off-peak pricing or promotions

• diversify products or services