Certified Production & Operations Manager (POM) Practice Exam

The ratio of actual output to effective capacity is referred to as what?

1. Actual capacity

2. Effective capacity

3. Efficiency

4. Utilization

The correct answer is: Efficiency

The ratio of actual output to effective capacity is identified as efficiency. This metric is crucial in production and operations management as it provides insight into how well a facility or operation is utilizing its potential output. Efficiency specifically measures the performance of an operation in terms of the output produced relative to the maximum effective capacity that could potentially be achieved under normal operating conditions. When understanding efficiency, it's essential to differentiate it from utilization. While utilization refers to the ratio of actual output to the maximum possible capacity (which is defined as designed capacity), efficiency focuses on how much of that effective capacity is being utilized in practice. Therefore, by examining efficiency, managers assess both the effectiveness of operations and opportunities for improvement.