You can use benchmarking to put your own KPIs into context and to set targets for your KPIs. Comparing your business performance against certain reference points – is a popular and potentially powerful way to glean insights that can lead to improved performance. In this article, we’ll explore the various types of benchmarking and how these approaches can benefit your business.
- This could include Accounts Receivable Turnover, Finance Error Reporting, and LOB Efficiency Measures—measured against industry averages to facilitate benchmarking of your accounting operations.
- Reuters provides business, financial, national and international news to professionals via desktop terminals, the world’s media organizations, industry events and directly to consumers.
- Benchmarking can be easier to understand if you think of it outside the realms of business.
- Only once this step has been completed will you be able to move onto the next step as the results of planning will focus on the information you need to collect and what success will look like.
- He is a past president of the Institute of Chartered Accountants in Australia, a member of the Australian Accounting Professional and Ethical Standards Board and a member of the IFAC SMP Committee.
- For example, there’s also business benchmarking, which refers to comparing your business’ performance to competitors in the same industry.
The information gained from such a comparison allows firms to develop new and better plans for how to make improvements or adopt certain best practices. Benchmarking can also be used when an organization has a number of similar free-standing operations, such as retail store outlets or bank branches. In this situation, a company can measure the performance of each location and use these results to rank the locations.
Monitoring and Benchmarking Key Performance Indicators: Part Two
Those scoring low are expected to benchmark their results against higher-scoring locations to determine how their performance can be improved. Benchmarking your company’s performance against industry competitors is one of the best ways to ensure your business is on the right track. Benchmark Groups is as precise as it gets… and you can break down your data in a dozen different ways (e.g. from business type and industry to company size and revenue).
Using this comparison method can help you pinpoint exactly what systems and processes the company needs to improve. If one company is quite successful, you can use benchmarking accounting to see what processes you might try to model after them. This process can also help you determine if the way the company operates is efficient or needs some reworking. To achieve the KPIs discussed, digitalization in accounting can have a significant impact. As the accounting industry trends towards AI technology and robotic process automation (RPA), benchmarking in this area will become a top priority.
It is crucial to remain objective and see all aspects of your business before making any decisions or taking action in this process because no one knows exactly what will work best for their needs like they do individually! Once findings start coming up, a complete analysis report can be created alongside a discussion about the next steps. In our article, the 11 KPIs your accounting practice should be tracking, we will further discuss these KPIs your accounting practice should follow and why, as well as formulas for how these KPI examples are calculated. To stay one step ahead of your competition, sign up today to our exclusive newsletters to receive exciting insights and vital know-how that you can apply today to drastically accelerate your performance.
Strives for the organization’s force on success
Gathering and analyzing information is only worthwhile when you can implement changes and better the company in the process. Gaining buy-in from a department can involve concessions so make sure the MVP you present is accepted and will likely equate to the success highlighted in the planning stage. Once you feel you have all the information you can gather, you can start to plot it and begin to understand the shortcomings you may have. It is important to remember at this point in the process that no business is perfect and you must have an open mind to be able to analyze information objectively. Once findings start to be uncovered you can draft a report and start discussing the next steps to achieve better performance in this area.
By leveraging a robust benchmarking framework like DEEM™, enterprises can quickly determine their accounting functional maturity level and take steps to transform their operations. Most commonly, benchmarking is used to evaluate an organization’s performance by focusing on one or more particular indicators. My Accounting Course is a world-class educational resource developed by experts to simplify accounting, finance, & investment analysis topics, so students and professionals can learn and propel their careers. With our product, you can quickly see how you stack up against your industry competitors or companies that are similar in size.
Stuart was made a Member of the Order of Australia in 2012 for services to the profession of accounting, to ethical standards, as a contributor to professional organisations, and to the community. The Chief Financial Officer (CFO) should be able to create a key performance indicator (KPI) framework for monitoring accounting performance and ensuring that employees are delivering maximum value. This could include Accounts Receivable Turnover, Finance Error Reporting, and LOB Efficiency Measures—measured against industry averages to facilitate benchmarking of your accounting operations. Controlling these costs and understanding competitor expenditure will keep your business on the right track financially.
Benchmarking software can be used to organize large and complex amounts of information. Software packages can extend the concept of benchmarking and competitive analysis by allowing individuals to handle such large and complex amounts or strategies. Such tools support different types of benchmarking (see above) and can reduce the above costs significantly. Public administration organizations use industry standards to identify areas for improvement in terms of the services they provide. Planning includes highlighting what you want to improve, who will serve as your comparison group, and how success should be measured at this point.
For example, corporate benchmarking would compare other organizations’ marketing divisions, finance, research team, testing squad, etc., to improve overall efficiency. Benchmarking identifies where your company is right now compared to where you want it to go. If you are looking at improving any process in your business, benchmarking is a way of looking at how you can excel and become more successful through outlining the steps needed to achieve your goal. When companies look at their processes and metrics they need to ask hard questions to get all the answers they need. This includes talking to everyone in the business and understanding their roles.
The following are the few types of benchmarking derived from the base of internal and external benchmarking. By comparing the metrics and practices of one organization to others, we can see how our company measures up. No plan is ever complete without monitoring results to determine how successful the plan has been. The implementation phase will have highlighted metrics and goals for success within a time frame so monitoring these is the only way of knowing the efficacy of the changes.
Pick which entities you wish to benchmark
Competitive analysis is a great way to identify gaps in your business and see where you can improve. Benchmarking yourself against the competition will allow for strategic improvements that could lead to growth industry-wide averages. Maybe you can talk to someone in another call center, or call the center directly to gain first-hand knowledge of their processes. By identifying areas you wish to improve on in your business and benchmarking your existing performance against competitors, your business can strive to enhance your execution tenfold. Using benchmarking this way has allowed businesses to gain strategic advantages over competitors and grow industry averages. Start the benchmarking process by choosing which area of the company you’re going to analyze.
The goal is to find new ways to upgrade your current product or even design new products based on the data you acquire. Benchmarking can be segmented into two broad categories – internal cash basis accounting vs accrual accounting and external benchmarking. The primary purpose of benchmarking is to establish a clear understanding of current performances and see which aspects we should focus more attention on.
Before looking at the processes of others, create a detailed document about your own. The more information you gather about the company, the more you’re going to be able to compare. Firms new to KPIs should perhaps start by identifying a few areas to focus on and selecting a handful of relevant KPIs, such as those mentioned above. Paul Thompson is EFAA Director and a consultant dedicated to thought leadership and development of the global accountancy profession. He advises developing professional accountancy organisations in Europe and Asia. Data leads to insights, and insights lead to better decision-making across business areas.