External Benchmark

This post is a continuation of a series of articles related to benchmarks in Business Intelligence space. Here is the sequence of posts “BI Essentials: Benchmarks“, “Benchmark Types (Type 1)” and “Guided Benchmark (Type 2)“.

External benchmarks, as the name suggests are the goals that are set based on factors outside the organization. This is practiced extensively in Quality Improvement related projects, both in manufacturing and service domains. Fundamental differntiator in this benchmark type is the comparison to answer queries,

  • How are we performing against the industry?
  • Average or Above or Below in terms of performance?
  • Leader or Laggard within the group of companies?

Let us take an example of Banks and an important metric that is tracked regularly by all banks and made available publicly is “NPL – Non Performing Loans”.  All banks report this KPI in percentage terms such as “% of NPL out of Total Loan Outstanding”. Benchmark_7If a bank finds the values for this KPI for all banks of similar size and portfolio, it gives the management team a clear picture on the position and enables them to make decisions to achieve strategic goals.

In BI parlance, these benchmarks require a lot of research and have to be collated from different sources. Complexity does not lie in the Data or ETL logic, but in the process of analysis and collection of relevant information and making them available for reporting needs. There are no dimensions involved to show ranking because the metrics are typically organization or department or business unit wide in reach.

Benchmark_8

Certain benchmarks are common, especially financial metrics such as Gross Margin, EBTIDA etc. that can be used as external benchmarks. The data regarding common metrics are available easily, but the key external benchmarks are unique KPI’s that are specific to industry and domain. One such example is Average Revenue Per User in Telecom Domain. These unique metrics along with standard ones help decision makers to gauge the standing among peer group of companies.

In BI maturity model, organizations first start by setting internal benchmarks i.e either self or guided ones. As BI adoption increases, external benchmarks are  integrated in an incremental fashion into the presentation layer and thus giving a holistic view to questions such as “Where we are?”, “How are we doing”, “Are we in good shape?” etc.