How do you use benchmarking to analyze costs?

1 Why benchmarking matters

Benchmarking can help you achieve several benefits for your construction cost management, such as reducing waste and inefficiency, increasing productivity and quality, enhancing competitiveness and profitability, improving customer satisfaction, and fostering a culture of continuous improvement and learning. This can be done by eliminating unnecessary or duplicated activities, adopting best practices and innovations, delivering projects on time and within budget, meeting or exceeding customer expectations, and encouraging feedback and collaboration.

2 How to set up a benchmarking process

To use benchmarking effectively, you need to follow a systematic process that involves four main steps. First, you must define your objectives and scope, such as what you're trying to achieve with benchmarking, what aspects of your costs you want to compare, and who your target benchmarks are. Second, you must collect and analyze data from your own and other projects, using tools and methods to interpret the data and determine key indicators and metrics. Third, you must identify and implement improvements based on the best practices and solutions from your benchmarks. Lastly, you must monitor and review results by tracking the impact of your improvements on costs, reporting them to stakeholders, and regularly updating your benchmarking process.

3 What to benchmark in construction costs

When benchmarking construction costs, there are many aspects to consider depending on your objectives and scope. Direct costs, such as labor, materials, equipment, and subcontractors, can be benchmarked by using unit rates, productivity rates, or cost indices. Indirect costs that support the project, like overhead, administration, insurance, and taxes, can be benchmarked by percentages, ratios, or benchmarks. Contingency costs allocated for unforeseen events or risks can be benchmarked by risk analysis, historical data, or industry standards. All of these cost benchmarks will help ensure the success of your project.

4 How to choose your benchmarks

When benchmarking, one of the most essential decisions is selecting your benchmarks. Relevance, reliability, and representativeness are all important criteria for choosing benchmarks. Your benchmarks should be similar to your project in terms of size, scope, complexity, location, and quality. They should also have accurate and verifiable data that you can access and use. Additionally, they should represent the best practices and performance in your industry or sector with a sufficient number and variety of samples to generalize and apply. Furthermore, their methodologies and assumptions should be clear and transparent.

5 How to overcome benchmarking challenges

Benchmarking can be a difficult process due to various challenges such as data availability, quality, confidentiality, security, standardization, and interpretation. To overcome these issues, it is important to plan and execute the benchmarking process carefully and collaboratively. Establishing clear and realistic goals, scope, and criteria is essential. Additionally, reliable and valid tools and methods should be used for data collection and analysis. Data privacy and security of your own and other projects must also be respected. Properly standardizing and adjusting the data is necessary, while interpreting and applying the data objectively is essential. Finally, stakeholders and team members should be communicated with throughout the process.

6 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?