GlossaryKind of term: Cost and economicsProductive hours
What are productive hours?
Productive hours are the hours a year a machine works on orders; the machine hour rate divides the machine's annual cost by them.
The test is whether an hour can be allocated to an order. Productive hours are therefore a share of the available hours: shift hours minus holidays and bank holidays, planned maintenance and breakdowns, training, waiting for material or a program, and hours with no order. One 40-hour shift a week gives 2,080 shift hours a year; productive hours sit well below that. Whether setup counts depends on your estimate: if you charge setup to the order, those hours are productive.
What do productive hours depend on?
The machine hour rate is the machine's annual cost divided by its productive hours. Which hours go in the denominator is a choice with consequences. Use this year's expected hours and the rate rises when work falls away, just when a higher price is hardest to sell. Cost-accounting methods therefore often use normal capacity: the hours you regard as normal over several years. The difference from actual hours then shows up as a capacity variance in the accounts, not in the price.
How do productive hours work in practice?
An optimistic count gives a rate that is too low: quotes look profitable, but fixed costs are not fully covered. A second shift or unattended hours add hours when there is work for them. Unattended hours carry machine cost but little or no operator time, so they often get a rate of their own. Booking time per machine lets you check the assumption after a year.
What are productive hours often confused with?
Productive hours are not attendance hours: an operator in the shop for eight hours books fewer hours to orders. Nor are they the utilisation rate, which sets hours worked against available hours. Nor are they OEE: OEE is a ratio of availability, performance and quality within planned time, not a number of hours.
Frequently asked questions
How many productive hours a year should a machine rate assume?
Start from the hours the machine actually worked on orders last year, from your time booking, and adjust for what you expect or for normal capacity. Without bookings: shift hours less holidays, maintenance and idle time, checked again after a year.
Do unattended hours count as productive hours?
Yes, when the machine is working on an order in those hours and you allocate them. They do carry machine cost such as depreciation and energy, but little or no operator wage cost, hence the separate rate they often get.
What happens if I overestimate productive hours?
Your rate comes out too low. Orders then look profitable while part of the fixed cost goes unrecovered, which only shows in the period accounts. Estimate cautiously and correct the figure after a year.