Financial Management

18Benchmarking Performance

Most traditional efforts by finance professionals are directed at the internal aspects of the enterprise, including financial and operational performance. Business partners can extend and expand the value they add by looking outside the enterprise. This chapter will focus on utilizing benchmark information to evaluate performance and to set enterprise goals for performance and value creation.

BENCHMARKING TO EVALUATE PERFORMANCE

Two types of benchmarking can be useful in evaluating performance and identifying improvement opportunities:

1. Process or functional benchmarks.
2. Overall performance.

Process or Functional Benchmarks

For many years consultants and trade organizations have collected cost and performance data on various business processes or functions. Examples include:

• Finance costs as a percentage of sales.
• Cost of processing an invoice.
• Length of time to close books.
• Duration of budget or plan cycle.
• Product development—time to market.
• Revenue process management.
• Supply chain management.
• Information technology.

For example, these studies allow you to compare the cost of finance and key processes in your organization to the costs of companies included in the study. Most surveys emphasize the importance of using consistent definitions since the scope of finance functions may vary from organization to organization. These surveys are very useful in identifying performance gaps and improvement opportunities, especially in transaction ...