In terms of developing a credit scoring model, which benchmarking approach do you think would work best?
- Process benchmarking
- Financial benchmarking
- Functional benchmarking
- Best-in-class benchmarking
- Operational benchmarking
Before we give you our answer, let’s take a moment to briefly define what benchmarking is and each of these benchmarking approaches.
Very simply, benchmarking is a process used by management to evaluate various aspects of their organization, usually with the goal of comparing their performance with other organizations in their industry or with their own past performance.
Here are some of the more common bench marking approaches.
- Process benchmarking – the focus is on observation and investigation of certain business processes from one or more entities in the same industry.
- Financial benchmarking – performing a financial analysis and comparing the results in an effort to assess your overall competitiveness and productivity.
- Functional benchmarking – the focus is on improving the operation of a single function.
- Best-in-class benchmarking – involves studying the leading competitor in an industry that best executes a specific function that has become the industry standard.
- Operational benchmarking – embraces everything from staffing and productivity, to office flow and analysis of procedures performed.
Perhaps even with the brief definitions it’s difficult to pinpoint which approach would be the best fit for your organization. There are many factors involved and there’s no rule that you can’t combine the ideas from more than one approach to come up with one that fits what you are trying to achieve. The most important idea is that whatever your goal is, the road map should contain the following broad steps:
- Define the process or target to be benchmarked
- Identify and collect data
- Determine where in inefficiencies exist
- Establish and implement process improvements
- Measure and communicate the improvements
- Evaluate and make changes
- Keep reviewing and recalibrating
Personally, I’ve found that “Best-in-class benchmarking” helps me to identify what is already established as a standard in our industry and then evaluating how my organization’s performance measures up accordingly.