How do you benchmark your cost performance against your competitors and best-in-class peers?

1 Define your scope and objectives

Before you start collecting and analyzing data, you need to define the scope and objectives of your benchmarking report. What are the key cost drivers and indicators that you want to measure and compare? How do you define your competitive set and best-in-class peers? What are the sources and methods of data collection and validation? How do you align your benchmarking report with your strategic goals and initiatives? These are some of the questions that you need to answer to ensure that your benchmarking report is relevant, reliable, and actionable.

2 Collect and normalize data

The next step is to collect and normalize data from your internal and external sources. Depending on your scope and objectives, you may use different types of data, such as financial statements, operational metrics, surveys, interviews, industry reports, or third-party databases. However, you need to ensure that the data is accurate, consistent, and comparable across different entities and time periods. This may require you to adjust for differences in accounting standards, currency exchange rates, inflation rates, business models, or market conditions. You may also need to segment and categorize your data according to relevant criteria, such as size, geography, product, or customer.

3 Analyze and interpret data

Once you have collected and normalized your data, you need to analyze and interpret it to identify the patterns, trends, and insights that can inform your cost reduction decisions. You may use different tools and techniques, such as ratios, benchmarks, indexes, graphs, charts, or dashboards, to visualize and compare your data. You may also use statistical methods, such as regression analysis, correlation analysis, or variance analysis, to test your hypotheses and measure your performance gaps. The key is to focus on the most relevant and meaningful data that can help you answer your benchmarking questions and objectives.

4 Identify and prioritize opportunities

Based on your data analysis and interpretation, you need to identify and prioritize the opportunities for cost reduction that can have the most impact on your bottom line and competitive advantage. You may use different criteria, such as feasibility, cost-benefit, risk, urgency, or alignment, to evaluate and rank your opportunities. You may also use best practices and examples from your competitors and best-in-class peers to inspire and validate your opportunities. The goal is to create a list of actionable and realistic recommendations that can address your cost performance gaps and challenges.

5 Implement and monitor actions

The final step is to implement and monitor your actions based on your recommendations. You need to develop a detailed action plan that specifies the tasks, responsibilities, timelines, resources, and expected outcomes of your cost reduction initiatives. You also need to establish a monitoring and evaluation system that tracks the progress, results, and impacts of your actions. You may use key performance indicators (KPIs), feedback mechanisms, or audits to measure and report your performance. You may also need to review and update your action plan regularly to account for any changes or issues that may arise.

6 Repeat and improve

Benchmarking is not a one-time activity, but a continuous process of learning and improvement. You need to repeat and improve your benchmarking report periodically to keep up with the changing market conditions, customer expectations, and competitive pressures. You may also need to expand or refine your scope and objectives, data sources and methods, analysis and interpretation tools, or opportunities and recommendations as you gain more experience and insights from your benchmarking report. The aim is to make benchmarking a part of your organizational culture and strategy that drives your cost reduction performance and excellence.

7 Here’s what else to consider

This is a space to share examples, stories, or insights that don’t fit into any of the previous sections. What else would you like to add?