FREQUENTLY ASKED QUESTIONS
Benchmarking is the practice of establishing the relative performance of a business or enterprise against an appropriate standard, generally industry standards derived from a survey of farms (Franks, Collis).
Benchmarking is the comparison of performance with the performance of others engaged in a similar activity and learning from the lessons that these comparisons throw up (Ashworth, 2002; Spendolini, 1992). It involves the action of continuously measuring and assessing products and services and practices against those of world-class businesses or top competitors (Slavin, 1994). It is about borrowing good ideas from others about how to improve (Brown, 1995) (Franks, Collis).
Benchmarking is an ongoing practice aimed at continuous improvement which aligns with an increasing interest in quality assurance procedures for production, marketing and business management systems (Charles Sturt University).
Accounting analyses the past, while budgeting analyses options for the future. Both use the same measures and conventions. Benchmarking (which used to be known as ‘comparative analysis’ before it fell out of favour with the agricultural economics profession) relies on accounting to compare businesses in the belief that this comparison will show how the less profitable can become more profitable by adopting the methods of the successful, using indicator ratios. (Future Beef)
Perhaps the simplest one-phrase response to the definition (of benchmarking) would include reference to ‘learning from others' :….learning something new and bringing new ideas into the (business) (Spendolini 1992) (Ronan and Cleary).
Benchmarking, in its proper process-based form, is about what things are done on farm, how they are done and what are the consequent productivity and financial outcomes (Ronan and Cleary).
The roots of current farm benchmarking efforts go back to the 1960s, when farm business performance was measured through performance ratios and comparative analysis. State Departments of Agriculture played a major role in developing management studies and comparisons within or between farm samples from a number of rural industries (Ronan and Cleary).
Probably the first national move into benchmarking in Australian agriculture was initiated in the Grain Research and Development Corporation's (GRDC) Farming and Sustainable Technology (FAST) Project, commenced in 1992. This project generated a range of ‘Business Health Benchmarks' (Ronan and Cleary).
By the mid-nineties, benchmarking reviews were noting the existence of many farmer group services based on or including ‘benchmarking'. However, these reviews were also recording a low overall participation rate by farmers, no consistency between approaches and a focus on numbers – particularly financial measures - rather than the farming processes and practices that give rise to the numbers (Ronan and Cleary).
Despite its process-oriented, enterprise-based roots, the phrase ‘benchmarking' has now loosely been applied in Australian agriculture to all forms of business comparative analysis, regardless of whether or not these have a process-based, best practice focus (Ronan and Cleary).
The use of physical and financial performance indicators and benchmarking for the financial analysis of farming businesses is a widespread practice in Australian agriculture, though its use has fluctuated over the years (Charles Sturt University).
Benchmarking can be either indirect — where producers calculate their own performance indicators and compare them against published industry benchmarks; or direct — where producers contribute their farm information into a service which generates the benchmarks for comparison with other sheep producers (Making More From Sheep).
Benchmarking requires the measurement of aspects of the production process. These are used to generate quantitative measures of selected key performance indicators (KPI) which describe the competitive performance and the production process achieved and used by the average and best farms. To compare own KPI to the basket of KPI presented in the benchmark comparisons, it is important that an identical methodology is adopted by the farmers as that used to report the benchmark data (Franks, Collis).
Related to ‘comparative analysis’ in that it involves the comparison of a performance indicator derived for one business with the same performance indicator derived for one or more other businesses. However benchmarking also incorporates a focus on the production (physical and technical husbandry), ecosystem resources management, human resources and business management practices / processes used in the business. Benchmarking therefore focuses on the key variables influencing productivity, profitability, liquidity and solvency (Charles Sturt University).
‘Best practice' benchmarking is distinguishable from comparative analysis, and some present so-called ‘benchmarking', by: being activity-based and systemically linking enterprise processes to efficiency, profit and cost; being part of the enterprise and farm information system and a contributor to production economic and whole farm analysis (not an end in itself for decision-making); providing unambiguous information, displayed clearly and systematically (Ronan and Cleary).
To make educated decisions about your business, you need facts and statistics. Business Benchmarking gives you a greater understanding of your business, you will know exactly how it is performing, rather than making assumptions. Having this data on hand will enable you to develop strategies to improve business performance (Proadvice).
It is a tool that can be used to help identify excessive costs and inefficiencies, and thereby help solidify and stabilise the financial structure of farms, and increase business competitiveness (Franks, Collis).
The bench marking opportunity allows you to explore the strengths and weaknesses of your business which leads to astute decision making to achieve additional profits whilst identifying areas for cost cutting and value-adding to your bottom line (Monaro Farming Systems).
Understanding your entire business and being able to benchmark its performance are essential tools in the long-term success of your farm (Walter and Lovett 1998) (Ronan and Cleary).
Benchmarking can highlight the production and management practices and processes that are driving enterprise costs of production and profitability. One farm's ‘drivers' may differ from that of other farm businesses. Knowing what and why helps the farm manager to review the scope for change (Ronan and Cleary).
Benchmarking has the potential to add more objective business comparison information to the type of information that farmers have traditionally valued from field days, farm walks, group networks and consulting services. So, while it may be a different tool, it is just another way of getting more of the same ‘learning by comparison' information that farmers have drawn upon in the past (Ronan and Cleary).
There is some value in knowing benchmarks for basic performance (such as maximum crop yields, stocking rates and lambing percentage) to give context within your district, if for no other reason than to gain an understanding of what is possible (GRDC).
Farm benchmarking will help you achieve high levels of profitability, sustainably over time. By identifying what the best producers are achieving from similar farms, benchmarking will allow you to get a more accurate fix on how much room there is for you to improve. Benchmarking analyses business performance and will provide the basis of good decision making to achieve additional profit (Holmes & Sackett).
Comparative analysis helps with paddock and enterprise selection (Phil O'Callaghan, GRDC).
No two businesses – or business people - are the same, so care is needed when comparing your business to others, as you may not be comparing ‘apples with apples’. ´ Defining your goals will help clarify what is most important to measure. ´ Benchmarking figures alone may be of little use without understanding their context (GRDC).
Benchmarks are usually easily calculated and readily available. However, one of their limitations is that they commonly focus on components of the business rather than the whole farm and it can be difficult to interpret such indicators in isolation (GRDC).
Benchmarking is a lot of work for a limited result. While industry still has experienced and capable extension officers, options analysis (budgeting) on practices currently in use, or not yet in use but revealed by research, will achieve a faster result than benchmarking (Future Beef).
Benchmarking may tell you that something is wrong, but it may not accurately identify where the problem lies or what is most profitable for your business (GRDC).
The role of benchmarking information can therefore be seen as an important supporting source of background information. It is not a replacement for a proper farm business analysis (GRDC).
Management time and expertise is often a key constraint in farming. It is not possible to justify spending managerial resources on benchmarking if the systems required to facilitate accurate comparisons and to be able to identify beneficial production processes that are likely to increase profitability are not in place (Franks, Collis).
Understandably, business operators are often reluctant to discuss publicly the performance of their own business (GRDC).
McGonagle (1993) believes that many businessmen and farmers believe that benchmarking is the domain of only the largest firms (Franks, Collis).
But only a relatively low proportion of farmers benchmark. This may be because farmers do not know how to benchmark, or it may be because they can seen no benefit in benchmarking (Franks, Collis).
Are you performing adequately? What are your cost and income trends? How does your farm compare with other similar farms? Where should you concentrate your efforts to get the most improvement? To answer these questions many growers often end up relying on intuition or subjective and generalised information rather then objective analysis of their specific farm (Phil O'Callaghan, GRDC)
Ensure appropriate data is accurately collected, recorded and submitted to a central collection organisation using the agreed methodology and submissions are on time (Franks, Collis).
In order to benchmark the performance of your own business against itself, you must first establish clearly defined goals, both at a whole farm/business level and then at an enterprise level. Business performance can only be judged against goals (GRDC).
To access some benchmarking data, farmers have to pay a membership fee, others are free to farmers, being financed with producers’ levy money (Franks, Collis).
Benchmarking services are provided by an increasing number of farm consultants, advisers, banks, accounting firms and extension providers (GRDC).