Bench mark analysis

It is roomer that bench mark analysis in old days  was first started by cobblers where people would rest their foot on the bench so cobbler could outline the foot in order to make the shoes of proper size.

After the industrial revolution in 19th century  benchmark analysis is used to compare the performance of business or its segment with industrial standards.

The steps taken in benchmark analysis are :-

1. Planning - Identification of areas and defining objectives

The manager has to first identify the areas which require improvement in its performance. The areas which have a direct and significant impact on profitability are given first priority. Once the areas where performance standards have to be enhanced are identified the manager has to set the goal in order to achieve the desired objective within stipulated time limits.

2.  Setting Key performance indicators (KPI's)

Once the areas where performance has to be improved we have to identify the key performance indicators which will  be compared with industrial standards. The key performance indicators are Gross profit, Operating Profit, Profit margins, Utilization of existing assets, Working capital management, Inventory Management, Man power utilization etc.

Eg :- If Asset to turnover ratio is very low this implies that assets are utilized more than its existing capacity and this may increase O&M cost in long run and is not favorable. If it si other way round then assets are not optimally utilized and the firm has incurred more capital expenditure than required.

3. Analysis

Analysis includes comparison of  KPI's with the peer company. If the information is not available in public domain then the same should be obtained by conducting market research where the target audience can be the end users. One should also identify the areas of improvement after comparing the KPI's.

4. Review and conduct post audit

The report and the areas of improvement must be highlighted to top management for their feedback. Once it is acknowledged by the management the next step is implementation of plan to improve the affected areas where the objective should be communicated to the team  which is involved in improvisation of affected areas. This organisation must adopt to improvements which fit to their overall approach to continuous improvement and culture.

The manager must ensure that the desired objectives are achieved within stipulated time limits to achieve overall satisfaction at organisation level.