The efficiency can be measured easily by measuring all the losses occurring in the boilers using the principles to be described. The disadvantages of the direct method can be overcome by this method, which calculates the various heat losses associated with boiler. The efficiency can be arrived at, by subtracting the heat loss fractions from 100.An important advantage of this method is that the errors in measurement do not make significant change in efficiency.

Thus if boiler efficiency is 90% , an error of 1% in direct method will result in significant change in efficiency. i.e.90 + 0.9 = 89.1 to 90.9. In indirect method, 1% error in measurement of losses will result in

Efficiency = 100 – (10 + 0.1) = 90 + 0.1 = 89.9 to 90.1 

The various heat losses occurring in the boiler are: