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Management

The power of benchmarking

24/11/2017
By Karen Crouch
KAREN CROUCH delves into the importance of comparing your practice not only against its performance from last year, but also your competitors.

With the midpoint of the financial year approaching, it’s timely to review goals, KPIs and various other objectives (employees, suppliers etc.) to ensure they are tracking to plan.

Most practices employ regular monitoring of performance to set targets, including analysis of variations, whether positive or negative. Comparisons to previous years, months or quarterly performances are yet another measure of achievement or the need for adjustments.

These measures may be appropriately labelled ‘self assessments’ – the practice’s performances against other past achievements. However, there is another option that is more meaningful as it plots various business factors against other practices and industry norms.

So, while a practice may be improving in relation to its own historical achievements, there may be room for better performance if others are enjoying higher outcomes.

"While a practice may be improving in relation to its own historical achievements, there may be room for better performance."

Success and performance are relative concepts in the sense that they are only satisfactory, or even extraordinary, when compared to other similar organisations in a similar business environment.

However, external benchmarking, if viewed in a narrow sense, can be less effective.

For example, in the health industry, benchmarking is often inappropriately associated with financial performance alone – are we sufficiently profitable? Can we make more money? Are our expenses too high and do we need to reduce them? Are salary levels too high or low?

And yet, there are other, patient and service oriented factors that also deserve measurement by comparison to similar organisations. For example, to gauge whether ‘customer service’ is up to standard or whether improvements are appropriate to ensure patient satisfaction without sacrificing quality healthcare.

Are patients regularly seen at the time of their appointments, or are they kept waiting beyond a reasonable period after they register with reception? Or, for instance, is the patient turnover per day so high that it may suggest numbers are perhaps receiving greater priority than patient needs might dictate (churn and burn)? Are average consultation times too tight – as a result of excessive appointments or inadequate practitioner numbers?

Of course, it is impractical and potentially inaccurate to simply compare one practice’s statistics to another at random and without reasonable allowance factors. As stated above, organisations should be ‘similar’ in general terms to support meaningful conclusions. And, as ‘similar’ does not necessarily mean ‘same’, some allowances and adjustments may be required to render the statistics of both organisations meaningfully comparable.

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Such important interpretations, including the aforementioned allowances and adjustments to ensure meaningful comparison, are most effectively performed by an experienced practice accountant (or an internal business manager for practices that employ one) who usually has an intimate understanding of the nuances of the business and industry generally.

Overall, meaningful benchmarking is best entrusted to experienced business analysts who have enjoyed wide exposure to a variety of practices and their particular differentiating features. Such analysts will work closely with practice accountants to scrutinise available statistical data and form authoritative observations to support meaningful conclusions.

Entrust benchmarking to experienced analysts
Entrust benchmarking to experienced analysts

Another reliable source of statistical information for benchmarking purposes is the Australian Bureau of Statistics (ABS). However, the ABS does not produce benchmarking statistics on every industry, or particular sector of the health industry.

Where sufficiently broad statistical information is not readily available to support comparisons, such data may need to be collected from a range of contributing practices, of varying sizes, to create a reliable database from which best practice performance standards may be gauged.

The challenge of constructing a comprehensive industry/sector wide database of knowledge to support accurate benchmarking is no simple matter and would rely on the consent of a sufficiently wide cross section of practices.

However, comparing like practices, or a group of like practices, regardless of business or operating nuances, could deliver appreciable benefits to participants. Naturally, all personal information must remain totally confidential as disclosure of operating habits may unwittingly reveal the identity of participants.

This form of benchmarking is particularly relevant, indeed desirable, for jointly owned practices or a chain of franchised businesses where similar, even same, operating and managing procedures are likely to lend themselves to meaningful comparison/benchmarking.

Some allowances may be necessary in respect of geographic location and/or patient composition. However, as such commonly owned and operated practices usually benefit from standardisation of operating principles, they are arguably the best form of inter-company analysis. Of course, industry benchmarks should still be employed as an important yardstick.

Given practices are not vastly different in basic operating habits, the potential for greater knowledge and sector wide performance improvement could be significant.

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