A term which is widely heard and used, but seldom understood clearly – Benchmarking. Let us throw some light about the concept of benckmarking
Benchmarking is the process of comparing one's business processes and performance parameters to industry best and/or best practices from other industries. Parameters typically measured are quality, time and cost. Improvements resulting from the results of benchmarking mean doing things better, faster, and cheaper.
Benchmarking involves management identifying the best firms in their industry, or any other industry where similar processes exist, and comparing the results and processes of those studied (the "targets") to one's own results and processes to learn how well the targets perform and, more importantly, how they do it.
The term benchmarking was first used by cobblers to measure people's feet for shoes. They would place someone's foot on a "bench" and mark it out to make the pattern for the shoes. Benchmarking is most used to measure performance using a specific indicator (cost per unit of measure, productivity per unit of measure, cycle time of x per unit of measure or defects per unit of measure) resulting in a metric of performance that is then compared to others.
Also referred to as "best practice benchmarking" or "process benchmarking", it is a process used in management and particularly strategic management, in which organizations evaluate various aspects of their processes in relation to best practice companies' processes, usually within a peer group defined for the purposes of comparison. This then allows organizations to develop plans on how to make improvements or adapt specific best practices, usually with the aim of increasing some aspect of performance.
Various types of benchmarking practices are in existence – process benchmarking, financial benchmarking, performance benchmarking, product benchmarking, strategic benchmarking etc.
For more information and reference visit:
CA Rahul Joglekar
Partner
Gokhale & Sathe
Chartered Accountants
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