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Benchmarking and Performance Management

By Hans Bool

Comparing outcomes could be fascinating. For example if you are eager to know whether there are more divorces in Hollywood than on average?

To measure the length of someone you can use a yard-stick, ruler or a measuring tape. If you have taken the measure, you can than compare it with others. If you want to compare the performance of activities, or the level of a competence or capability, you can use a benchmark.

A benchmark could be the outcome of activities or competences that have previously been measured. Such a benchmark serves like a reference, like a norm that can been set as a target.

Mutual fund managers use benchmarks to set their performance target. This can be any index that is related to the funds (for example the Dow Jones Industrial Index). The index is composed of different stocks according to their weighted value in the index. During the year, the index will change, because of the price changes of the stock values. If the fund manager invests in the same way as the index is established, the performance of the mutual fund will equal the index. By taking slightly different investment decision resulting in a bias from the portfolio against the index the investor will be able to beat the index or benchmark.

In the same way, an organization can setup a benchmark with which the performance of the organization could be measured. This could be done in different ways

2006 Hans Bool

Hans Bool is the founder of Astor White a traditional management consulting company that offers online management advice. Astor Online solves issues in hours what normally would take days. You can apply for a free demo account

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