Activity Capacity Details

Activity capacity is an essential factor, especially when a business is budgeting for production. The activity capacity will determine the number of goods that the company can produce within a certain period. It will also determine the amount of machinery that a business should invest in to make the optimum number of goods.

When a business seeks to increase its production capacity, it will analyze its activity capacity. The company needs to operate within an upper and lower level of activity to realize its goals within the period for which it budgeted. This is commonly known as the relevant range of activity.

The activity capacity of a business is what spells out the difference between a profitable and a loss-making venture. A good business manager can optimize the number of employees available to work while also utilizing the machinery available. Too many employees with too little machinery will distort the activity capacity the company needs to perform and produce optimally.

Activity Capacity Example

A production company produces car tires and must employ activity capacity to maximize its production potential. If a manager realizes that the number of tires the company makes within a shift does not match the expected output, then the activity capacity is low.

The manager may decide to check if the production equipment matches the number of employees available during a shift. If the number of employees is proportional to the number of machines, then the problem could be in the number of employee breaks.

He may then decide to monitor the number of breaks that employees take within a shift. If these breaks are outside the number allowed by the organization, he should then curb them. Fewer breaks will translate to more time spent working. This, in return, creates a higher productivity rate for the company. This is how a typical example of optimized activity capacity would work in an organization.

Significance of Activity Capacity

A business must maximize its capacity to produce at all times and under all circumstances. So by looking at its activity capacity, a business can determine how much it will produce and sell within a certain period.

When they consider its activity capacity during a business’s budgeting process, the company will be able to maximize its output. It will do this by ensuring that there is maximum output regardless of the circumstances that are prevailing at any given time.

If a business calculates its activity capacity well, managers will be able to see different areas of the business that need optimizing.

Activity Capacity Vs. Capacity Building

As mentioned earlier, the activity capacity of an organization is in regards to the production potential of the business. It is a combination of employee activity and the tools employees need to get the job done. In the long run, activity capacity will affect the bottom line of a business directly or indirectly.

On the other hand, capacity building is the process by which individuals in an organization improve their productivity. This can be a self-driven or company-driven exercise. The employee takes time to gain more skills, resources, and equipment to do their work more efficiently and competently.

In a nutshell, these two terms cannot be used interchangeably, despite directly impacting the production output of an organization.