A measure of the productivity of a department, plant, strategic business unit, firm, etc., that combines the individual productivities of all its resources including labor, capital, energy, material, and equipment. These individual factor productivities are often combined by weighting each according to its monetary value and then adding them. For example, if material accounts for 40% of the total cost of sales and labor 10% of the total cost of sales, etc., total factor productivity = .4 (material productivity) + .1 (labor productivity) + etc.
Total-factor productivity (TFP) addresses any effects in total output not caused by inputs or productivity. For example, a year with unusually good weather will tend to have higher output, because bad weather hinders agricultural output. A variable like weather does not directly relate to unit inputs or productivity, so weather is considered a total-factor productivity variable.
