The Process of Finance Benchmarking - Assignment Example

Finance benchmarking is the process where a company compares itself with another to access the performance of the other company used as a benchmark (Platen & Heath, 2009). By so doing, the company will be able to identify areas that need to be improved and those tasks that are wasting a lot of companies’ capital to be completed. It is a framework for monitoring the financial performance of the business. Financial benchmarking enables businesses to learn lessons from others and helps them identify areas they have to concentrate on (Platen & Heath, 2009). The benchmarking technique used includes; operational review and financial ratios.
The operational review enables the company to compare its current data with the past. By looking at the past trend and history of the company the company will establish its position in comparison with the past. The financial ratio technique enables the company to take the current financial statement apply mathematical formulas to them and then come up with a metric. Once financial ratios are applied in other companies then it becomes possible to compare one company to another.
The financial ratio technique is the best because it enables a small company to compare itself with a bigger company (Platen & Heath, 2009). The financial ratio also makes it possible for companies that are equal in both size and capacity to compare their performance. The operational review will not be giving a company its true position in the market because the company will not compare itself with others.
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If the workload required to keep the business fully in operation is not estimated correctly, this will drastically reduce the value of the operating budget because before making any budget proposal one is first required to estimate the workload required to accomplish its activities to determine the budget allocation (Platen & Heath, 2009). This is usually presented as the total work units identified by the cost accounts that are essential to the operation. By setting the budget with verifiable information, it will be much easier to create an operating budget that does truly reflect what is needed in the way of income to keep the business functioning. Often, this information is essential to the task of allocating funds to the operation of various departments or sections within the company organization, and thus making sure each area has what it needs to manage its assigned tasks efficiently
Rigidity reduces the value of an operating budget, operating budget ought to be adjusted from time to time because more often there are surprises within organizations. Changes should be allowed to be made to the budget because frequently there are shifts in the number of revenues generated. At some point in the middle of the business, there could be adjustments regarding projected changes in consumer demand.
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Time: How long will it take to implement a project right from its initial stage until its completion? This includes the time taken by the staff. It is the number of hours and days that a project or program take before its impact is recognized. A project that takes the shortest time to be completed is given a score of 5. The faster the project is the lesser resources will be used (Hope & Fraser, 2003). Every initiator or overseer of a project should ensure that he takes time seriously because time is of the essence. If the project was intended for a specific population within a specific time delay will render that project useless because it will no longer serve its intended purpose.
Impact: The changes in a situation that results from the combined effects of project activities, or the extent to which the goal is achieved. Impact also refers to any unintended positive or negative changes that arise from the project's completion. If a project has a great impact it means that it is successful. A project with the greatest impact is given a score of 5. For a project to be rated successful, its impact must be felt across the board (Hope & Fraser, 2003). In the course of executing the project, the impact felt should be used as a point of reference to access its success. Read More