Benchmarking-Improving Major Financial Processes: A Primer

What is Benchmarking?

Benchmarking refers to a series of actions performed to systematically measure the products, processes, and services against the industry’s best practices. What do the best practices mean? Best practices refer to the practices that produce performance of superior quality. What practices are best in the industry based on the systematic method? Next step after selecting the best practices is how to implement them so that they can fit your business organization. In other words, benchmarking can be defined as a process that helps business organizations to learn how to give the best performance by comparing with the past performance of their own company and with the strategies adopted by other companies in the industry.

Four Steps of Benchmarking: The main objective of benchmarking is improving major financial processes. The process of benchmarking can be divided into four major steps:

1. First step is to compare the company’s performance with its own past performance and that of the other companies in the industry. 2. Second step is to find out the results of performance comparison. 3. Third step is very crucial. Once you have found out the better performer, you need to pinpoint the practices that had led to better performance. 4. The fourth and final step helps you to adopt the practices that helped others to improve major financial processes.

Benchmarking Doesn't Let You Be Complacent: There are several examples to prove that those who are paying attention to the process of benchmarking to improve major financial processes have gained more profits. There is no doubt that the people who are ready to analyze their business operations and compare them with the best in the industry will boost their profitability significantly. Benchmarking does not allow you to be complacent. It questions present performance and energizes you to improve it to compete with the best industry practices. On the contrary, complacency prevents you from making further growth in the industry.

Realistic Approach: Benchmarking also helps you to adopt realistic approaches. You find out weak points and improve major financial processes by learning from others. Almost all major companies all over the world and public sector organizations are taking advantage of this technique. A study performed in United Kingdom and United States has indicated clearly that the financial processes of the companies who have adopted benchmarking tend to be significantly higher. Nothing can be better than benchmarking for developing the ability of financial management, forecasting, budgeting, and cost and financial analysis.

An important element of benchmarking is quality management process. It concentrates more on the processes adopted to achieve the results rather than the results themselves. You must involve a second party so that you can share the information for the mutual benefit. Software is also available to help you to maximize the benefits of benchmarking.

Alexander Gordon is a writer for http://www.smallbusinessconsulting.com/ - The Small Business Consulting Community. Sign-up for the free success steps newsletter and get our booklet valued at $24.95 for free as a special bonus. The newsletter provides daily strategies on starting and significantly growing a business.

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By Alexander Gordon | This article was posted on 2007-07-03 01:06:42

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Definition:

Benchmarking (also "best practice benchmarking" or "process benchmarking") is a process used in management and particularly strategic management, in which organizations evaluate various aspects of their processes in relation to best practice, usually within their own sector. This then allows organizations to develop plans on how to adopt such best practice, usually with the aim of increasing some aspect of performance. Benchmarking may be a one-off event, but is often treated as a continuous process in which organizations continually seek to challenge their practices. A process similar to benchmarking is also used in technical product testing and in land surveying. See the article benchmark for these applications.

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