Page 200 - DMGT514_MANAGEMENT_CONTROL_SYSTEMS

Unit 9: Performance Measurement Systems

Self Assessment Notes

Fill in the blanks:
7. ………………… can be measured in terms of sales revenues, unit sales volume or the
number of customers.

8. ………………….. may be defined as the attributes, the supplying companies provide
through their products and services to create loyalty and satisfaction in targeted customer
segments.

9.5 Benchmarking and Bench Trending

Benchmarking is a continuous process of comparing products and operations with the strongest
competitors or the best practices in similar operations of the best performing company.
Benchmarking is a process that is in contrast to the traditional method of establishing current
goals based upon past performance of the organization. Target costing is a specific form of
benchmarking applied to product costs.

The benchmarking consists of four subprocesses:
1. Planning the variables to be benchmarked and selecting the companies that are to be used
for comparison and methods used to collect comparative data on these companies: The
first thing is to decide the benchmarking variables such as: products manufactured, services
provided, products or services purchased, processes used, major costs variables, etc. The
next step is to identify the targeted companies such as: competitors, identical functions in
the same company or similar functions in companies out of the industry. Firms with the
best practices can be identified through internal and external sources, including built-up
databases, professional associations, industry studies, journals, trade publications,
consultants, contacts, seminars, vendors and company sponsored surveys.
2. Establish the current and projected gap in performance between the targets, company’s
operations and internal operations: The purpose of analysis phase is to determine the
current gap in performance between current internal operations and best practices and to
project the likely future gap if nothing is done. Best practices can be established based on
clear superiority, expert judgement or repeated occurrences of best practices in many
situations. It is important to project the likely future gap, since practices change over time.
The benchmarking studies usually provide useful information about the gaps in
competitiveness for an operation or process. Bench trading studies include a projection of
the critical market and customer structural variables such as: identification of customer
preference, innovation threats, new entrants, geopolitical impacts and other market
variables critical to the long-term success for the firm. The techniques associated with
bench trending is similar to benchmarking but with a new structural dimensions.
Management should decide when the extra effort required to perform bench trending is
advantageous.
3. Communicating benchmark findings to operating personnel and establishing internal
goals for implementation: The gap may be closed by two types of actions: Strategic actions
and continuous operating actions. Specific goals with proper time frame must be set for
closing it and proper communication to all concerned marketing, new business
development, business management, engineering, manufacturing management and
controller.

LOVELY PROFESSIONAL UNIVERSITY 195