Many folks use the terms “efficiency” and “productivity” interchangeably. They are not interchangeable. They are not equivalent. Heck, they’re not even synonyms—even though Thesaurus.com thinks so.

Technically, productivity is a ratio of (good) outputs to inputs; efficiency is the ratio of actual output to standard output. Lean practitioners are typically, and more appropriately, concerned about productivity. As the famous Art Byrne, former CEO of Wiremold, said, “Productivity = Wealth.”

However, in this article, we are talking about efficiency, and it’s important to understand the basic math around efficiency.

Efficiency is the ratio, typically reflected as a percentage, of actual output to the standard expected output. The measurement therefore provides insight into how well a resource is performing relative to a standard.

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