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5 ways benchmarking can boost your business

INSIGHT ARTICLE  | 

Construction companies face new and complex challenges every day. Knowing how to successfully navigate through them is what can get a company ahead of the competition and better positioned for the future. One incredibly helpful management tool is benchmarking.

Benchmarking is the systematic process of using financial data to compare an organization’s performance against similar best-in-class organizations. Those companies considered best in class are typically businesses that outperform their peers in a variety of key metrics (such as return on assets and return on equity), carry less debt, show more gross profit per employee, and have a higher gross profit margin and net income before taxes.

Once the best-in-class companies are identified, benchmarking is relatively simple: Identify the metrics of those companies you want to benchmark and track them over time to measure your company’s performance against them. Doing so can help a construction company—regardless of its specific industry niche—keep pace with the rest of the industry, remain competitive and, hopefully, boast a better bottom line.

Benchmarking is certainly not new to the construction industry—it has been used for many years—but today more than ever companies have national performance data at their fingertips. With the wide range of data available—by region, company size, specialty or practically any other metric—why not use it to make your business better?

Here are the top five ways benchmarking can help your business.

1. Benchmarking can improve your performance.

It can be hard to improve a company’s financial performance, especially if there are no specific goals or standards established. Benchmarking can help solve that problem by providing specific metrics from similar best-in-class companies that can clearly show what your company must improve or where you’re already on the right track.

2. Benchmarking is about more than industry averages.

It’s easy to just compare your company to the industry average, but simply aligning with the industry average is not the answer to improving your bottom line and remaining competitive. It takes specific information from similarly focused companies to truly see where you measure up and where you don’t.

3. Benchmarking removes the doubt.

If your company isn’t achieving a goal, it’s easy to say that goal is simply unattainable and can’t be reached. Not with benchmarking. A company that makes benchmarking a part of its routine process knows what goals are manageable and can even glean information regarding how to reach those from the metrics of other best-in-class companies.

4. Benchmarking can help manage risk.

Whether it be financial issues or safety hazards, construction companies face a number of risks every day. Some companies manage those risks successfully while others do not. To best manage risk, a company must understand the various types of risk and identify the risks inherent in their business. Benchmarking is essential to good risk management as it can provide the management team with the knowledge necessary to avoid or eliminate specific risks before they become serious problems.

5. Benchmarking can help your company focus.

Every company has room for improvement. But when all seems to be going well for a company, it can be hard to focus on—or even find—any areas that could be improved. Consistently benchmarking your company against the performance of other similar-type companies can help keep you focused on improvement efforts that are critical to your company’s success.

There’s no reason not to implement benchmarking. While on the surface it may sound like a complicated task, establishing a benchmarking process is really rather easy.

  • First, the management team should institute a formal plan that firmly establishes what the company needs to improve, which can be done by performing a comprehensive financial analysis.
  • Next, company leaders should select the appropriate metrics to benchmark. That could be the cost structure, profit margin, annual revenue, equipment costs or any other type of available data. It’s important to remember that all available metrics aren’t going to be applicable to your company, and thus there is no reason to waste time looking at data that is irrelevant to your business or the specific target of your focus.
  • Then, implement an improvement plan based on those metrics. When implementing the plan, be sure to track the progress made.

When you make a point to notice the positive effects benchmarking makes on your company, it makes it much easier to keep benchmarking as an important part of the company culture.

Benchmarking is essential to running a profitable company. Being complacent in establishing and implementing a benchmarking process is a missed opportunity to cut costs, increase margins and make informed business decisions.


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