How often should you benchmark expenses in corporate accounting?

1 Why benchmark expenses?

Benchmarking expenses can help you measure the efficiency and effectiveness of your spending compared to your peers, competitors, or best practices. Doing so can identify gaps and opportunities for cost reduction or value creation, as well as help you align your spending with strategic goals and priorities. Additionally, benchmarking expenses can assist in monitoring progress and performance over time, communicating results and achievements to stakeholders, and enhancing decision-making and planning processes.

2 What to benchmark?

Before you start benchmarking your expenses, it's important to define what you want to benchmark and why. You can benchmark expenses at different levels, such as total expenses, specific expense categories, functional or departmental expenses, and process or activity-based expenses. When choosing the level of benchmarking that is most relevant for your business objectives and context, consider the availability and quality of data, the comparability and consistency of metrics, and the feasibility and cost of benchmarking.

3 How to benchmark?

Once you have defined what you want to benchmark, you need to decide how you want to benchmark it. Internal benchmarking involves comparing your expenses across different units, regions, or periods within your organization. Alternatively, external benchmarking compares your expenses with those of other organizations in the same industry, sector, or market. You could also opt for best-in-class benchmarking and compare your expenses with those of the top performers or leaders in the field or domain. When selecting which method of benchmarking is most appropriate and useful for your purpose and scope, be sure to use reliable and valid sources of data such as industry reports, surveys, databases, or third-party consultants.

4 When to benchmark?

The frequency of benchmarking your expenses depends on a variety of factors, such as the volatility and complexity of your business environment, the pace of change and innovation in your market, the stability and maturity of your business model, the availability and accessibility of data and resources for benchmarking, and the alignment and engagement of your management and staff. As a general rule, it’s recommended that you benchmark your expenses at least once a year to track performance and adjust plans accordingly. However, this could be more or less often depending on the situation. Additionally, you should benchmark whenever you face a major change or challenge in your business, such as a merger, acquisition, restructuring, or crisis.

5 How to use the results?

Benchmarking your expenses is an ongoing process of learning and improvement. You should not only collect and analyze the data, but also use the results to evaluate strengths and weaknesses, identify action items for cost optimization, implement and monitor plans, communicate findings with stakeholders, and review and update benchmarks as needed. Through this cycle of evaluation, identification, implementation, communication, and review, you can prioritize initiatives for value enhancement, measure outcomes and impacts, solicit feedback and support, and repeat the cycle.