ACKNOWLEDGEMENTS
Benchmarking - a management tool that can help organizations
improve the efficiency and effectiveness of their procedures and
processes - has been in evidence for several years now, both in
the private and public sectors.
When we set out to produce this Guide, we found an extensive
body of research and literature that defines benchmarking. While
the literature is varied, researchers and authors tend to use
similar elements when describing the process of benchmarking.
Rather than recreate existing benchmarking processes, we borrowed
ideas from recognized works and adapted them to best fit
Financial Management Benchmarking in the Canadian federal public
service.
In particular, we wish to acknowledge the contribution of
ideas from the following sources:
EXECUTIVE SUMMARY
The Report of the Independent Review Panel on Modernization
of Comptrollership in the Government of Canada recommends
that departments and agencies have standards for performance
information and a decision-making framework that encourages
continuous improvement.
Benchmarking, which can be used in the public sector, is an
example of a continuous improvement tool that can:
- Provide meaningful performance information.
- Improve strategic planning and provide an assessment of the
organization's strengths and weaknesses.
- Establish challenging performance goals and stimulate better
financial management.
- Foster implementation of best practices and lead to increased
efficiency in the use of resources.
This type of continuous improvement can be achieved in an
environment that embraces the process of benchmarking and the
adoption of best practices. The art of benchmarking in the public
sector is in its infancy. While private industry has used
benchmarking as an improvement tool for many years now, the
public sector has been slower to do so. Nevertheless, as
indicated in the references and Web sites listed at the end of
the Guide, interest is mounting.
The Guide to Financial Management Benchmarking was
developed following consultations with departments and agencies
on the state of, and interest in, financial management
benchmarking across government. The purpose of the Guide is to
ensure a common understanding of the concept across government
and to provide practical advice to those wishing to embark upon a
benchmarking exercise. Roles and responsibilities are described,
as are lessons learned by organizations that have already used
benchmarking.
The core content of the Guide is its five-phase generic model
and the practical case study, which applies and demonstrates the
model phases. The planning phase is crucial to the success of a
benchmarking exercise. This is where you define what is to be
benchmarked, who the best performers are to provide good
comparisons, and how the data will be collected. The
establishment of a benchmarking team and identification of
performance indicators also take place during the planning phase.
The process then moves to the data gathering phase using
questionnaires, surveys and site visits. The data are analyzed
and presented in a form that helps in drawing conclusions and
recommendations. Implementation of a performance improvement plan
and regular monitoring are part of the fourth phase in the
process. Finally, periodically revisiting the performance
indicators and benchmarks ensures that the organization maintains
superior performance in a changing environment.
Implementation of benchmarking in the public sector presents
many challenges. Each department will need to decide when is the
right time for them to proceed with financial management
benchmarking. Most financial managers and officers will need
training to be able to use benchmarking effectively. It is our
intention that this Guide provides guidance and advice, while
allowing the readers to formulate their own opinions about
detailed implementation. It is hoped that this will encourage the
use of benchmarking as an important tool for improving and
modernizing financial management practices in departments and
agencies.
1. INTRODUCTION
1.1 Background
The Report of the Independent Review Panel on Modernization
of Comptrollership in the Government of Canada lists, as one
of the critical prerequisites of modern comptrollership, the need
to have standards for performance information that are adaptable
to the requirements of departments. The Panel Report further
emphasizes that part of good comptrollership involves a
decision-making framework, which includes appropriate
benchmarking and performance measurement. As well, it stipulates
that Deputy Heads and their staff would welcome and expect advice
in areas such as benchmarking techniques.
Benchmarking provides a useful tool that may be used to assist
in the achievement of modern comptrollership by identifying ways
to develop financial management capabilities and strengthen key
financial management functions such as budgeting, forecasting,
cost, financial and performance analyses.
Some work has been done in the past at the Treasury Board of
Canada Secretariat (TBS) on benchmarking. For example, the
Innovative and Quality Services Group published a series of
Guides on Quality Services. Three of those guides contain,
directly or indirectly, information regarding benchmarking.
This Guide is generic and could apply to all benchmarking, but
our focus is on benchmarking financial management functions (as
illustrated by the example in the case study). The Guide was
developed following a series of studies conducted by the firm
PricewaterhouseCoopers under the direction of the Financial
Management Policy Division of TBS. Part of the studies included
consultations with representatives from TBS, departments who are
members of the Comptrollership Council and other departments who
agreed to participate in the projects. The Guide would provide
departments and agencies, wishing to undertake financial
management benchmarking, with information on how benchmarking of
financial functions works, how it helps and what the benefits
are.
1.2 Why is a Guide necessary?
Benchmarking is not easy. Many initiatives yield inappropriate
comparisons or inconclusive data, leading to ill-conceived or
unsuccessful improvement measures. Others drain resources with
poorly planned and managed benchmarking projects or by taking on
projects that are too big in scope. How does the committed
manager direct and guide his or her organization's resources to
successfully benchmark financial management?
Benchmarking involves rigorous self-examination, careful
quantification and qualification of important performance
measurements, extensive data collection and analysis, and the
development of a process for continuous improvement. Improvement
opportunities often involve major cultural or operational changes
for the organization.
However, the benefits of financial management benchmarking far
outweigh the costs and risks involved. Identifying strengths and
weaknesses, increasing client satisfaction, prioritizing
improvement opportunities, setting goals and developing a climate
of continuous change are all marks of the successful
organization, the one against which other organizations benchmark.
The main purpose of this Guide is to ensure a common
understanding of the concept of financial management benchmarking
across government. It is intended to be a tool that provides
guidance and advice. While this Guide is designed to provide a
blueprint for success in this effort, it is not mandatory. The
Guide includes a process designed to provide consistency across
government while remaining flexible enough to ensure that it can
be adapted and used by financial, functional and operational managers.
The model recommended in this Guide provides managers and
employees with a description of the suggested financial
management benchmarking process, as well as practical guidance on
its application. Fifteen private and public sector models were
combined and then refined to obtain a model best suited for the
needs of the federal government. A case study illustrates,
through a practical example, how to apply the recommended model.
2. OVERVIEW OF BENCHMARKING
2.1 Definitions
Benchmarking, best practices and related concepts mean
different things to different people in different contexts.
Definitions of each of the key concepts were developed, through
the literature review process, to ensure a clear and common
understanding of the subject matter. The definitions are provided below.
Table 1 - Definitions of Important Terms
Definitions of Important Terms
Term
|
Definition
|
Benchmarking
|
The continuous, systematic process
of measuring and assessing products, services and practices of
recognized leaders in the field to determine the extent to which
they might be adapted to achieve superior performance (TBS
Guide X on Benchmarking and Best Practices).
|
Benchmark
|
An external point of reference by
which the performance of activity, function, operation, process
or service can be measured.
|
Financial Management Benchmark
|
An external point of reference by
which the quality or value of financial functional areas can be measured.
|
Best Practices
|
Management practices and work
processes that lead to world class or superior performance
(Fletcher Challenge Petroleum). Best practices serve as
goals for organizations striving for excellence. The search for
best practices is an intrinsic part of benchmarking.
|
Metrics
|
Elements of a measurement system
consisting of performance indicators, measures and measurement
methodologies.
|
Performance Metric
|
A quantitative or qualitative
measure to determine how well an organization is doing.
Performance metrics are metrics that you can compare against
others (firms, departments, etc.) to assess performance.
|
Standard
|
Something set up and
established by authority as a rule for the measure of quantity,
weight, extent, value, or quality. Any definite rule, principle
or measure established by authority (Webster's Dictionary).
A degree of (or an expectation of) excellence, required for a
certain management purpose, optimally a level of merit or
quantity, that is reproducible and used as a measure readily
recognized both internally and externally to the organization
(Comptrollership Modernization Office, TBS).
|
2.2 Benefits of benchmarking
Benchmarking is a tool that provides goals for realistic
improvement and helps you understand the changes required for
improving performance. You may use benchmarking to identify and
rectify problems, implement strategic change initiatives, or for
continuous improvement. "In the private sector, the primary
rationale for benchmarking is the desire to maintain or regain a
competitive market position. While most public sector
departments and agencies do not actively compete for market
share, there are equally valid reasons to consider benchmarking
as a public sector management improvement technique"
(Bibliography #13, Chapter 1, p. 1). (1)
Provide meaningful performance information
"All levels of government need reliable ways of assessing the
relative performance of public programs in order to be able to
set overall priorities and strategies. Benchmarking can assist
public sector managers improve the quality of their performance
information. Such improvements can, in turn, help organizations
better meet external and internal accountability requirements.
Benchmarking information often adds an important comparative
perspective to organizational outputs. Specifically, some data
may only be valuable when compared through time or with other
organizations..." (#13, ch. 1, p. 2).
Improve strategic planning and provide an assessment of
the organization's strengths and weaknesses
The organization can learn how to plan for the long term more
effectively by seeing how other organizations have reached better
levels of performance through their own strategic planning.
Benchmarking allows management to determine where major problems
lie, and what can be done to strengthen weak areas. Areas of
excellence will also surface, enabling the organization to
continue with what it is doing well.
Establish challenging performance goals and stimulate
better performance
"Benchmarking is all about comparison, and comparison can be a
driving force to spur on organizational or individual
performance" (#13, ch. 1, p. 1). Realizing what an organization
is doing wrong, or could do better, leads to easier planning for
future target performance levels. Management will know where it
stands in terms of performance and what has to be done to get
where it wants to be. This should result in more realistic goals
being set.
Benchmarking of activities or functions can help senior
managers and staff determine how organizations and programs are
performing in relation to the leading organizations in their
field. The technique can uncover new and creative ideas to assist
in performance improvement. Benchmarking serves as a tool, among
others, to assist managers in their mandate to modernize and
improve financial management in the federal government.
Foster implementation of best practices and lead to
significant savings
Benchmarking and other comparative information can be used to
address pressures by identifying ways to streamline processes, or
opportunities to improve the allocation of resources. The
implementation of best practices found in other organizations
through benchmarking will help the organization become more
efficient and effective.
2.3 Practices that promote
effective benchmarking in the public sector
Successful benchmarking can be achieved in the public sector
if there is a conscious effort to create the right environment
and build a culture of continuous learning and improvement. The
following ideas provide a blueprint for fostering success.
Appropriate environment
- Establish and sustain an environment across government and
within organizations that embraces the process of benchmarking
and the sharing of best practices.
- Secure endorsement and resource commitments from all levels
of management for a quality service strategy incorporating
benchmarking and best practices.
- Promote government-wide and departmental sharing of
benchmarking and best practice experience and information.
- Promote benchmarking and best practices partnerships and
alliances across government, within federal departments, and with
other public and private sector organizations.
Dissemination of information
- Disseminate and share best practice and benchmarking
information and results in a timely, accessible, user-friendly
and efficient manner.
- Publicize and support the sharing of benchmarking and best
practices through various media.
- Identify high-profile benchmarking and best practice pilot
projects to demonstrate process effectiveness.
- Build benchmarking and best practice sharing into training programs.
Ongoing improvement in benchmarking process
- Assess progress in implementing benchmarking and best
practice sharing and continuously improve benchmarking and best
practice processes.
- Assess the effectiveness and efficiency of the different
means of benchmarking and best practice sharing, and of
improvements to operational results.
- Conduct benchmarking and best practice user consultations to
encourage managers, the professionals who support them and other
employees to continuously improve the means for capturing,
disseminating and sharing information on benchmarking and best practices.
Note: It should be noted that departments are currently
involved in the implementation of the Financial Information
Strategy (FIS). The FIS initiative seeks to fundamentally change
the way in which government manages its financial information.
Some departments may decide to wait until some of these changes
are in place before embarking on extensive benchmarking.
3. ROLES AND RESPONSIBILITIES
This section describes the roles and responsibilities of
various players in the government context as they relate to
financial management benchmarking. It should be noted that
financial management benchmarking is one of several tools
available to assist managers in carrying out their functions.
3.1 Treasury Board of Canada Secretariat
- Develop guidance on financial management benchmarking, as required.
- Facilitate the conduct of benchmarking studies.
- Facilitate the sharing of information on benchmarks and best practices.
- Advise on the availability of training in benchmarking.
3.2 Senior departmental and operational managers
- Provide leadership and communicate effectively about
benchmarking with all staff.
- Set corporate culture and ensure credibility, respect and
trust for benchmarking activities.
- Provide necessary resources and commitment.
- Translate benchmarking objectives to departmental staff.
- Develop partnerships with organizations to benchmark with.
- Approve benchmarking measures and standards.
- Implement data gathering tools for benchmarking.
- Incorporate benchmarking as a key ingredient in the
organization's Total Quality Management (TQM) and Continuous
Process Improvement (CPI) programs, and in its strategic planning
and budgeting process.
- Provide effective input to decision making and use
benchmarking information to achieve better results.
- Implement agreed to changes following benchmarking studies.
3.3 Financial and audit managers
- Assist in setting the financial management benchmarking priorities.
- Provide leadership in initiating the financial management
benchmarking projects, the agreement on organizations to be
studied and team members' roles.
- Inform employees and other key players in the organization of
the objectives and processes involved in conducting financial
management benchmarking.
- Ensure organizational awareness of the existence of financial
management benchmarks, performance gaps and opportunities to
close the gaps.
- Identify the cost and benefits of changes based on the performance gaps.
- Develop financial and performance measures to monitor
progress against the benchmark standards.
3.4 All employees
- Demonstrate expertise in an area of work.
- Balance independent judgement and effective teamwork.
- Show open-mindedness regarding exchanging information.
- Participate effectively in data gathering for benchmarking purposes.
- Participate in implementation of changes following benchmarking studies.
4. QUESTIONS TO ASK BEFORE YOU START
Not everything that can be measured is important and not
everything that is important can be measured.
Albert Einstein
4.1 What, and when, should we benchmark?
Generally speaking, you should choose to benchmark financial
management functions that are important to the effectiveness of
your organization and to your ability to meet your organizational
strategic objectives.
Benchmarking should be an integral part of your overall
management strategy. The timing of benchmarking efforts is
critical. Benchmarking during times of major changes may lead to
inaccurate benchmark data.
4.2 Do we have the resources
to do the benchmarking and implement
the outcomes?
There need to be adequate resources (people, time, and
funding) for the benchmarking project to be planned and carried
out successfully. Once the scope of the project is defined,
resources will be needed to gather the data. One creative
approach may be to create an interdepartmental consortium to
jointly fund the initiative, and share the effort needed to plan
and launch a benchmarking study.
In addition to the cost of benchmarking, there are costs
associated with implementing the results of a benchmarking study.
If the results of the study are not acted upon due to lack of
resources, there is risk that the process could be of no value.
4.3 What type of benchmarking is appropriate?
Benchmarking is a generic term that can take a number of different forms:
"Results benchmarking involves comparing two or more
organizational outcomes against ... related performance indicators.
These indicators are not usually general standards (i.e., goals
to be achieved), but more often, a suite of measures or proxies
used by organizations to ascertain organizational or program
efficiency and/or effectiveness. The focus on outcomes does not
mean that questions relating to the efficiency and effectiveness
of internal processes are less important" (#13, ch. 1, p. 3).
Specific examples of financial results benchmarking include
the cost of departmental financial services as a per cent of the
overall departmental operating budget and percentage of overall
finance staff effort devoted to transaction processing versus
operational decision-making support.
Process benchmarking involves benchmarking results-oriented
organizational processes. Processes are defined as particular
methods or tasks undertaken by selected work units.
This typically involves a number of discrete steps or operations.
What is commonly referred to as formal work procedures and rules
often influence a process. The goal of process benchmarking is to
improve the quality or quantity of an organization's outputs.
Improvements realized can have a direct bearing on organizational
or program outcomes (#13, ch. 1, p. 2).
Examples of financial process benchmarking include, but are
not limited to the expenditure cycle, revenue cycle, travel,
financial planning and analysis, and general accounting and reporting.
In effect, results benchmarking could be a precursor to
performing process benchmarking by first taking a macro followed
by a micro view of an organization. Results benchmarking is the
starting point for determining the underlying reasons for
performance differences and may lead to process benchmarking to
measure differences in processes.
Benchmarks are a form of standard, which can be defined as
goals against which actual performance can be measured.
Benchmarks are usually categorized into minimum, average and best
practice standards defined as follows:
- Minimum standards imply a level of service or performance
that will almost always be achievable.
- Average standards comprise the mathematical average of the
level of service provided to all users as well as efficiency and
quality of service factors such as error rates and/or number of
transactions processed per full time equivalent (FTE).
- Best practice standards are used to define an expected level
of service and to motivate staff to achieve a higher level of
performance or productivity (#13, ch. 1, p. 3).
4.4 Who should we compare ourselves to?
There are a variety of ways to identify who to compare your
organization to. The financial management process(es) you decide
to benchmark determines, more than anything else, which
organizations you should choose as benchmarking partners.
Organizations looking to conduct benchmarking studies can
choose among external benchmarks, internal benchmarks or
analogous benchmarks.
External benchmarking identifies the product, services
and work processes of organizations providing similar products or
services and compares their results. It is a useful lever to
highlight areas in need of improvement within the organization (#12, p. 5).
Benchmarking against other federal government departments,
other levels of government (such as provincial or municipal) as
well as the private sector would constitute external benchmarking.
Internal benchmarking compares an organization's own
similar processes or products. This is the easiest type of
benchmarking to perform, but is limited to the organization's
best internal practices. It should be considered as a means of
establishing a baseline performance that will later be used for
comparison to external performance and to identify the scope of
improvement opportunities (#12, p. 5).
An example of internal benchmarking in the public sector would
be a decentralized department, which compares financial
management processes conducted in its regional offices.
Analogous benchmarking is considered the most difficult
and most desirable type of benchmarking as comparison is made
with a world-class organization which may be performing a similar
process but in a different field. Such organizations are hard to
identify and may require adjustment in accounting and other
practices (#12, p. 5).
4.5 Should we use consultants?
Consultants can provide help and add credibility for
benchmarking surveys in small- and medium-sized organizations
that might find it difficult to conduct the activity in-house.
For instance, consultants can provide the necessary benchmarking
training. There may be greater confidence in the results if the
benchmarking is carried out by a third party that is perceived as
objective and independent.
The information should be provided in the form of a customized
benchmarking report for your organization that compares your
performance against similar or suitable organizations for
benchmarking purposes. You benefit from accessing key data
normally constrained by confidentiality issues, and no reference
is made to either organizations or individuals in the
presentation of results, thus maintaining anonymity.
5. THE BENCHMARKING PROCESS
"Benchmarking is a deliberate, time consuming process
requiring organizational discipline, and a strong and active
commitment from senior management. The desire to close any
performance gap requires tough operational, organizational and
resource allocation choices, which must be supported by upper
management, and backed by a willingness to adapt and learn from
others" (#12, p. 5).
This section is a useful guide for financial and program
managers intent on effectively conducting a financial management
benchmarking study and seeking to accelerate the introduction of
benchmarking into their organizations.
Its aim is to help participants understand how to:
- identify benchmarking projects that are consistent with
senior management's strategic plans;
- analyze a process flowing across functional areas;
- structure an approach to effectively gather "best-in-class" information;
- develop a framework for identifying, organizing and analyzing
process performance; and
- analyze benchmarking data effectively to compare performance
measures and underlying causes and enablers.
Leading practitioners have formalized the benchmarking process
into five general phases:
Each phase requires specific actions to be completed, and
although an organization can modify them to suit its specific
situation, they are recommended as guides for the successful
implementation of the overall benchmarking process.
5.1 Planning
"This phase is the most crucial and its objectives are to
identify what is to be benchmarked, who the best
performers are, and how the data will be collected" (#12, p. 5).
Identify and prioritize the areas to be benchmarked
It is important to have an understanding of your
organization's existing internal processes, products, and
services before commencing a benchmarking study. A thorough
knowledge and understanding of the internal environment is
critical for several reasons:
- it positions the organization to readily determine the
potential gaps between its outcomes or activities and those of
best practices organizations;
- it may reveal important sources of information and assistance
as well as benchmarking opportunities;
- it facilitates the selection of appropriate benchmarking
partners and meaningful performance indicators; and
- the exchange of information is the cornerstone of
benchmarking. Without an internal review, an organization may not
be able to engage in the meaningful exchange of information and,
as a result, may encounter difficulties in obtaining information
from others.
In the case of process benchmarking, determining which
processes should be benchmarked and in what priority, is
accomplished by answering the following questions:
- Is the process key to the success of the organization?
- Is the process a significant drain on resources?
- Is the process perceived to be either overstaffed or underperforming?
(#2, ch. 3, p. 11)
- Is the process stable (i.e., not being redesigned or changed)?
- Is the process high profile and viewed as a candidate for improvement?
It is important not to try to benchmark too many activities
at once and to start with two or three of the highest
priorities. In many cases, the number of functions to be
benchmarked may be obvious or established by previous research.
Critical success factors, products, services, and processes are
examined and a decision criterion is used to select the processes
requiring immediate benchmarking focus.
Identify the internal clients of
benchmarking, their requirements, the outputs of
the benchmarking effort and gain the endorsement
of management benchmarking, their requirements, the outputs of the
benchmarkingeffort and gain the endorsement of management
Managers of individual processes are typically focused on
those processes that affect their operation. A clear
understanding of what use will be made of benchmarking
information is critical to the success of the project. An
organization will need to set parameters around the resources
established for the benchmarking project such as the available
time, money and personnel devoted to the task. At this stage, it
is also useful to consider how benchmarking results will be used
as this may indicate what should be benchmarked and the level of
detail required.
Gaining the support and "buy-in" of senior management is
crucial at this point. While senior management commitment is
critical to ensuring that the project results are implemented,
the day-to-day efforts associated with the benchmarking
initiative will need to be driven by the managers of the
financial functions to be benchmarked.
Establish the benchmarking or
process improvement team benchmarking or process
improvement team
Forming a project team with the knowledge and capacity for
planning, communicating the results and implementing the findings
is critical for setting a clear and concise direction for the
project. This also includes setting limits on the number of
benchmarking team members and estimating the number of processes
to be benchmarked. "The team should be made up of individuals who
are most knowledgeable about internal operations, are more likely
to be affected by the changes due to benchmarking, and who are
flexible and open to change. Eventually, these team members will
become the change agents in the organization" (#12, p. 6).
Manage the change
As with any new initiative or undertaking, unless skilfully
managed and implemented, benchmarking will not necessarily
produce the desired results. Benchmarking involves changes to
processes and ways of doing business which may be met with
scepticism and resistance on the part of staff. There are always
choices about how to move through the change process. Sometimes
it makes sense to move quickly; whereas at other times it is
preferable to invest time in crafting the change process
carefully to minimize disruption and cost.
To be effective and increase the likelihood of success of the
financial management benchmarking exercise, the benchmarking team
needs to formulate a change management plan and update this plan
periodically. The key components of this plan should include:
- clear articulation of benchmarking objectives and their
linkage to the overall departmental as well as finance
organization vision;
- strong and visible senior management commitment throughout
the process;
- identification of a critical mass of people from all levels
of the finance organization who will push for the change and
demonstrate ownership and commitment;
- honest, open and regular communications with staff; and
- a clear migration approach from the current to the future
state based on benchmarking results.
Although included as part of the planning phase, change
management is an activity that would need to occur throughout the
benchmarking process.
Review and document processes
The analysis of processes chosen for benchmarking is a pivotal
part of the benchmarking exercise. Inadequate collection of
information on processes and sub-processes may ultimately limit
successful analysis and the overall usefulness of the exercise.
The objective of this step is to identify the primary
characteristics of one or more processes, including enablers such
as tools and systems associated with specific processes. This can
be accomplished through process mapping, which involves
charting the sequence of events or activities associated with the
delivery of a service or product. Process mapping can be
initially undertaken at a fairly high level with a focus on the
main business processes. Subsequently, the high-level maps can be
dissected into varying levels of detail until the desired level
of detail is obtained for all activities related to the target
processes. In some instances, the mapping process may point to
immediate improvement opportunities.
Define the relevant benchmarking
measurements benchmarking measurements
Selecting performance indicators includes defining what is to
be measured and how it is to be measured in very clear terms.
This step determines the criteria for how an organization's
performance will be assessed against the performance of others. A
balanced set of measures or family of indicators which reflects
the perspectives of clients (both internal and external),
stakeholders and employees is necessary to properly gauge performance.
Most processes are measurable but the challenge lies in
identifying the "right" measures. Sometimes, it may not be
possible to develop meaningful indicators for certain processes
such as those related to strategic planning or the provision of
financial advice. In these instances, an option is to adopt a
case study approach to identify lessons learned. Measuring the
quality of the outputs of a process should also be taken into
consideration. For instance, the timeliness of producing certain
types of financial information may be improved, but the cost may
be prohibitive and the gains are not appropriate for the increase in cost.
When selecting performance indicators it is important to
consider a range of factors such as alignment with organizational
objectives and priorities, potential impacts on employee
performance, stakeholder requirements and resource implications.
The performance indicators most commonly used for benchmarking
studies consist of ratios or percentages. Qualitative measures of
performance (timeliness, client satisfaction, etc.) should be
developed whenever possible.
Depending on the nature of the services provided and the
objectives of departmental programs, it may be important to link
indicators to client needs and expectations. When establishing
the indicators, it is important to note that differences between
organizations may diminish the validity of comparisons based on
simple ratios. For example, differences in resources used to
carry out transactions may limit the value of comparisons based
on the cost per transaction. In such circumstances, it is
preferable to define performance indicators more broadly by
including a range of factors such as transaction complexity, the
value of invoices and number of customers.
Research and choose benchmarking partners
A useful approach to identifying potential benchmarking
partners is a two-step process that involves:
- Developing a set of possible selection criteria such as:
- the nature of financial management services or programs
(e.g., extensive grants and contributions program or significant
cash management responsibility);
- size of department or agency;
- type of financial system;
- extent to which financial management responsibilities have
been devolved to line managers; and
- the degree of centralization or decentralization (e.g., number
of regional offices and other field sites).
- Creating a partner profile based on the important evaluation
criteria to assess the suitability of potential partner organizations.
In general, comparable organizations of similar size and
structure should be chosen to benchmark with to ensure that
relevant and applicable information is collected.
A final selection would be determined by the similarity of the
business, program or function to produce valid results, the
potential partners' willingness to share information, the value
and importance of the information to the organization, and what
information must be exchanged with the benchmarking partner.
Potential types of benchmarking partners that a public sector
organization could consider include:
- other parts of one's own organization;
- other federal government departments and agencies;
- departments and agencies in provincial and municipal governments;
- departments and agencies of foreign governments; and
- private sector companies.
Establish code of conduct
Establish appropriate benchmarking protocols that define
expected behaviours and outcomes towards benchmarking partners.
Appendix B presents benchmarking ethics and a code of conduct.
Determine the data gathering methods
"Finding credible information with which management can be
convinced to implement change is considered the heart of the
benchmarking process" (#12, p. 6). There are essentially three
main data sources: internal information sources, external
information sources and original benchmarking research.
Information could be obtained from one or several of these
sources. The validity of benchmarking results is strengthened
when more than one source of information is used and integrity of
the data is verified through cross-checks.
The benchmarking team must decide on the best method for data
gathering after taking into consideration the benchmarking
objectives and information needs. The following criteria provide
a rule of thumb for deciding on the best method of gathering
information:
- extent and accuracy of the information required;
- cost of obtaining the information;
- the intended uses of the information;
- amount of time available to conduct the data gathering exercise;
- accessibility of the data source(s) (#6, p. 7).
Ideally, internal data should be collected first because it
may reveal strengths and weaknesses that point to areas in the
greatest need of benchmarking. External data sources include
government reports/documents/publications, research papers,
journals and magazines, international benchmarking clearing
houses, professional associations, academic sources and seminars
or conferences. Sources of original research encompass
questionnaires, telephone interviews and site visits with
benchmarking partners.
5.2 Data gathering
"The following provide some general guidelines for data gathering.
Questionnaire
"A questionnaire is the foundation for any good benchmarking
study and provides a common communication link among the
benchmarking participants. Prepared before initial contact, it
ensures that the team has a good understanding of the processes
being benchmarked, and is verified by those who do the actual
work" (#12, p. 7).
Surveys
When conducting a mail or telephone survey, the appropriate
target population is identified and asked to respond to a
questionnaire. It is sometimes necessary to offer some incentives
(such as free communication of results) to ensure a rate of
response that will provide reliable results (#12, p. 7).
Personal visit and interview
"The initial contact should be made by the benchmarking team
leader or by senior management, especially where sensitive data
is to be considered. The data analysis methodology should be
carefully considered to ensure that the data is in a format
conducive to analysis" (#12, p. 7). A two-member team is
considered ideal for a visit: one to ask the questions, another
to take notes and observe the interview process.
5.3 Analysis and integration
Analysis of data is a precursor for the identification of
performance gaps and the underlying causes of such gaps. The
validity of benchmark data is affected by the degree of
comparability between organizations. In some instances, such as
where one organization is heavily automated while another is not,
performance measures may not be readily comparable. In these
cases, the benchmarking team would need to normalize the data in
order to draw accurate conclusions.
Data is normalized on a ratio basis using factors such as:
- size (budget dollars/employee);
- age (infrastructure, IT systems); and
- working environment (fiscal pressures, regulatory requirements).
Comparing performance indicators between organizations may
reveal differences and gaps that need to be addressed. Comparing
results internally and among organizations leads to questions as
to why differences occur. For results benchmarking, this means
looking beyond the quantitative data and examining the
environmental context including processes and other factors such
as policy, legal or legislative differences in order to determine
the causes of variances in performance.
A basic tool for analyzing performance gaps is a matrix chart
listing performance measures for each of the benchmarking
partners. This matrix format has been found to be useful in
highlighting performance gaps. In evaluating performance gaps,
the focus of the benchmarking team should be future oriented.
Instead of targeting current levels of performance, the team
should look beyond today's performance levels and targets to
understand the level of performance that will be required in the
future and the enablers required to achieve that level. A
prospective approach is essential for achieving and maintaining
superior performance.
The analysis of data should be related to the original purpose
of the study. If the purpose of the study is to gather
qualitative business practices and methods, organizations will
need to synthesize the raw data using any of the following tools:
The analysis of data should lead to the determination of
benchmark performance and to the understanding of the practices
used to achieve them. The performance gap represents the
difference between the internal performance and that of the best
in the field, and could be either negative, zero or positive.
Where performance gaps exist, the next step would consist of
designing and implementing a performance improvement plan and,
subsequently, recalibrating the benchmarks.
5.4 Implementation and execution
"This is a crucial stage, as results must be communicated
properly. The benchmarking team should document results in a
manner appropriate to its organization, intended audience and the
nature of the study... At this stage, the benchmarking team
presents management with its findings to obtain acceptance of the
analysis, conclusions and implementation actions necessary to
close the performance gap. The presentation to management should
include the goals or planned performance to narrow, close or
exceed the benchmark standard, based on the organization's
objectives. The successful implementation of a performance
improvement plan requires senior management sponsorship and
buy-in. Performance improvement plans may range from incremental
improvement to the redesign of processes to reengineering. A
business case outlining the cost/benefit of the chosen level of
improvement is often necessary to secure senior management commitment.
"Once management acceptance is obtained, the organization
should develop a set of action plans to achieve the new goals. It
is critical that actions be well defined to ensure their
successful implementation. For each action, a description of time
frame, responsibility, resources requirements and its impact on
the performance gap should be included. Action plans should also
be reviewed with the staff in affected areas to obtain their
commitment. After the implementation stage begins, progress
should be monitored against milestones established in the action
plans" (#12, p. 8).
5.5 Recalibration
"Organizations are aware that their environment is not static
and in that regard, neither should benchmarking" (#12, p. 8).
Periodically revisiting benchmarks is essential for maintaining
superior performance in a rapidly changing environment. Targets
and standards will evolve over time and decisions will need to be
made whether to measure performance against existing or new
standards/targets. These decisions will need to consider that
benchmarking entails financial costs as well as human resource
costs triggered by the impact of change on staff.
A balanced approach is required to prevent excessive change
while avoiding complacency. Senior management will need to
determine how often and how extensively the benchmarks need to be recalibrated.
6. LESSONS LEARNED
Where financial management benchmarking is undertaken, it is
important to apply lessons already learned. A list of some of the
lessons identified from the benchmarking experiences of others is
provided below.
- Before embarking on a benchmarking exercise, a cost-benefit
analysis should be undertaken. Benchmarking is very expensive and
it is important to decide in advance how the information will be
used and whether it is worth it.
- Make sure you have a good understanding of the underlying
business processes.
- Benchmarking is a process that requires full commitment from
top management as well as incentives for successful
implementation. A benchmarking champion can help in fostering
this commitment as well as monitoring progress in implementing changes.
- Choose your partners carefully. The processes and results to
be benchmarked should be comparable and yield meaningful
comparisons. Benchmarking with private sector organizations can
be useful for government departments and agencies provided the
comparisons are relevant. Ensure that you have an "apples to
apples" comparison and that critical differences are identified
and taken into account.
- Try to use existing systems to generate the data needed to
support benchmarking. Do not initiate a separate data collection
exercise unless absolutely necessary.
- Each government organization has a different operating
structure and there are different types of funding. Similar
organizations must be grouped together for comparison (i.e., they
cannot all be compared against each other).
- Implementation begins at the project-planning stage. Seasoned
benchmarking professionals will tell you that for a benchmarking
project to deliver the goods, careful planning and preparation
are essential.
- Benchmarking projects must be focused on highly specific
comparisons and aimed at delivering broad business benefits.
Don't rush in until you have precise questions for which you need answers.
- Keep senior management informed all the way through. Include
the people who are currently managing the aspect of the business
being benchmarked - and who will be responsible for implementing
changes - on the benchmarking team.
- "Improve processes (in the case of process benchmarking) not
individual metrics. Don't confuse exchanging performance measures
with benchmarking. Statistics cannot be improved, but the
operations or processes that those statistics purport to measure
can" (#14, p. 3).
- In the hunt for that elusive best practice, consultants are
certainly one place to start. The major benchmarking consultants
claim to be able to tell you not only how you perform but also
how that performance compares to the best-in-class.
- "Structured visits yield more data.... Some simple pointers
will ensure that your benchmarking visits turn out to be
jackpots, not junkets.... Teamwork has to start before stepping
through the door of another [organization].... A structured agenda
is vital.... Each member of the team should know exactly what
his/her role is and understand how the information that he/she
gathers will integrate with other information to form a coherent
summary of the entire visit.... Asking for learning experiences as
well as factual details is vital" (#14, pp. 6-7). Take copious notes.
- "Develop a targeted implementation.... 'The more complex the
change, the greater the risk.' It's not metrics that count but
processes.... So by carefully focusing on clearly defined processes
to benchmark and ensuring executive buy-in at the beginning,
benchmarking exercises can get off to a good start and come to a
fruitful conclusion.... Don't try to tackle too much at once, set
action-oriented milestones and monitor them regularly" (#14, pp. 7-8).
7. CONCLUSION
The implementation of benchmarking in the public sector
presents many challenges. While many departments and agencies
have been using some form of internal benchmarking for a number
of years (e.g., comparing the practices, processes and
performance of regions or service offices), there is not a common
understanding of the concepts of benchmarking, benchmarks, best
practices and standards. The terms are used differently and,
sometimes, interchangeably. This, in itself, presents challenges
in advancing the implementation of benchmarking as a tool in the
federal government financial management community.
Benchmarking in general, and financial management benchmarking
in particular, is in the embryonic stages in the federal public
service. The tools and techniques are not yet fully understood
and most financial managers and officers have not been trained in
their use. The number one complaint voiced by those we
interviewed is that it sounds good in theory but it is very
difficult to apply in real life.
This Guide was developed to provide guidance and advice on the
use of benchmarking for the financial management functions in
particular. The Guide outlines a process and model that can be
adapted to the need of the organization and the manager wishing
to use benchmarking to measure and improve performance. The goal
is to give the readers an outline of the steps necessary to
implement a strong benchmarking and performance measurement
program while allowing them to formulate their own opinions about
detailed implementation. The desired outcome is that benchmarking
become an important tool for improving and modernizing financial
management practices in departments and agencies.
8. ENQUIRIES
For further information, guidance and advice on this Guide,
please contact the following office:
Financial Management Policy Division
Financial Management Policy and Analysis Sector
Comptrollership Branch
Treasury Board of Canada Secretariat
L'Esplanade Laurier
8th Floor, West Tower
300 Laurier Avenue West
Ottawa, Ontario
K1A 0R5
Fax: (613) 952-9613
Phone: (613) 957-7233
Copies of Treasury Board of Canada Secretariat publications
are generally only available in electronic format. The Guide
to Financial Management Benchmarking can be accessed through
the TBS Internet Site at the following address:
http://www.tbs-sct.gc.ca/
APPENDIX A - INTEGRATED MODEL FOR BENCHMARKING
Successful benchmarking must be based on a structured
approach. Organizations employ benchmarking models with as few as
four and as many as 33 steps. Each phase of the model below has
specific activities as explained in Section 5 of the Guide. This
integrated model was chosen to be a public service oriented
model, which organizations can modify to suit their particular situation.
Display full size graphic
APPENDIX B - BENCHMARKING ETHICS
AND CODE OF CONDUCT
Ethics
In actions between benchmarking partners, the emphasis is on
openness and trust. The following guidelines apply to the
partners in a benchmarking project.
Do
- Establish specific ground rules up front.
- Consult with legal counsel if any information gathering
procedure is in doubt.
- Treat any information obtained from a benchmarking partner as
internal, privileged information.
Do not
- Ask organizations for sensitive data or cause the
benchmarking partner to feel that sensitive data must be provided
to keep the process going.
- Disparage an organization's business or operation to a third party.
- Misrepresent yourself as working for another employer.
- Disclose or use any trade secret that may have been obtained
through improper means or that was disclosed by another in
violation of duty to maintain its secrecy or limit its use.
As the benchmarking process proceeds to the exchange of
information, benchmarking team members are expected to:
- "Know and abide by The Benchmarking Code of Conduct.
- Have basic knowledge of benchmarking and follow a benchmarking process.
- ...Have determined what to benchmark, identified key
performance variables, identified superior performing
organizations, and completed a rigorous self-assessment."
- Have developed a questionnaire and interview guide and share
these in advance if requested.
- Have the authority to share information (#1, p. 3).
Code of conduct
To contribute to efficient, effective and ethical
benchmarking, individuals agree for themselves and their
organization to abide by the following principles for
benchmarking with other organizations. These are based on the
Professional Code of Conduct jointly approved by the
Strategic Planning Institute's Council on Benchmarking and the
American Productivity & Quality Center's International
Benchmarking Clearinghouse.
Principle of confidentiality
- Treat benchmarking interchange as something confidential to
the individuals and organizations involved.
- Information obtained must not be communicated outside the
participating organizations without prior consent of benchmarking
participants (#1, p. 1).
- Do not extend benchmarking study findings to another
organization without first ensuring that the data is
appropriately blinded and anonymous so that the participants'
identities are protected.
- Obtain an individual's permission before providing his or her
name in response to a contact request.
- Avoid communicating a contact's name in an open forum without
the contact's prior permission.
Principle of legality
When benchmarking with a private sector partner, government
departments and agencies should:
- Consult with their legal counsel if there is any potential
question on the legality of an activity.
- Avoid discussions or actions that could lead to or imply an
interest in restraint of trade, price fixing, bid rigging, or bribery.
- Refrain from the acquisition of trade secrets from another by
any means that could be interpreted as improper including the
breach or inducement of a breach of any duty to maintain secrecy
(#1, p. 1).
Principle of contact
- "Respect the corporate culture of partner organizations and
work within mutually agreed procedures.
- Use benchmarking contacts, designated by the partner
organization, if that is their preferred procedure.
- Obtain mutual agreement with the designated benchmarking
contact on any hand-off of communication or responsibility to
other parties" (#1, p. 2).
Principle of preparation and completion
- "Demonstrate commitment to the efficiency and effectiveness
of benchmarking by being prepared before making an initial
benchmarking contact.
- Make the most of your benchmarking partner's time by being
fully prepared for each exchange.
- Help your benchmarking partners prepare by providing them
with a questionnaire and agenda prior to benchmarking visits.
- Follow through with each commitment made to your benchmarking
partner in a timely manner.
- Complete each benchmarking study to the satisfaction of all
benchmarking partners, as mutually agreed" (#1, p. 2).
Principle of exchange
- Be willing to provide to your benchmarking partner the same
type and level of information that you request from them.
- Communicate fully and early in the relationship to clarify
expectations, avoid misunderstanding, and establish mutual
interest in the benchmarking exchange.
- Be honest and provide information that is complete (#1, p. 1).
Principle of use
- "Use information obtained through benchmarking only for
purposes stated to the benchmarking partners" (#1, p. 2).
- Agree how the benchmarking partners wish to have information
treated and handled, and honour that agreement.
(1) Style for Parenthetical References:
The first part of the reference is a number that relates to the
corresponding number for the authors listed in this Guide's
Bibliography in Appendix E (e.g., #13=Trosa, Sylvie and Suzanne
Williams); the second part of the reference will contain, if
appropriate, the applicable chapter (ch.) or Appendix number of
the author's work being cited; and the third part includes the
page number of either the document, the chapter or the Appendix
being cited.[Return]
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