How do you learn from the best practices and innovations of your cost benchmarking peers and competitors?

One simple method of benchmarking is to calculate and compare simple cost ratios or partial productivity measures - identify cost driver and divide cost by that driver; for example cost of production divided by number of units produced to calculate cost per unit, such as cost of gasoline or petrol per km of distance to compare car efficiencies. When cost depends (which it does usually) on a number of cost drivers (eg, distance as well as terrain and traffic congestion in our car example), a more complex method such as regression or econometric analysis - one example is data envemopment analysis (DEA)- is used.

Cost benchmarking is a strategic management tool used by organizations to evaluate their costs in comparison to similar entities or processes within the industry. The process involves measuring and analyzing various cost metrics to determine how efficiently the organization operates in relation to its peers.

Cost analysis is a systematic examination and breakdown of the various components that constitute an organization's costs. The primary aim of cost analysis is to gain insights into how and why money is spent within the organization, as well as to understand the factors driving those costs and their impacts on the business. Key aspects of cost analysis include: 1. Identification of Cost Components: 2. Understanding Cost Behavior: 3. Analysis of Cost Drivers: . 4. Evaluation of Cost Structure Changes: 5. Assessment of Risks and Uncertainties: 6. Decision Support:

Identify Gaps: Use benchmarking to find cost discrepancies compared to industry peers, such as identifying higher logistics costs than competitors. Informed Decisions: Leverage insights from cost analysis to understand internal inefficiencies affecting costs, like excessive overtime in operations. Best Practices: Adopt successful strategies from top performers, such as implementing automation in customer service to reduce costs. Collaborative Learning: Engage with industry leaders at conferences to share innovative practices, enhancing overall cost efficiency. Data-Driven Insights: Utilize visual data analysis to pinpoint areas needing improvement, such as a bar chart comparing departmental costs for targeted reductions.

While finding a suitable comparator or benchmark and a method to take account of differences are significant challenges of cost benchmarking, the main shortcoming of cost analysis is the lack of a benchmark to assess success or set a target. Analyzing your own costs alone will not help you find areas of your operations where you can improve and compete in the industry.

Stop comparing yourself to the price and costs of others and start focusing on providing the best product or service that you can offer. Add the quality, value and customer service that justifies your offer. If the market then won’t support the price you charge either you sacrifice what you stand for (unwise) or you look for better customers