Benchmarking

Benchmarking is the practice of comparing something against a standard or norm, often as a prelude to more detailed analysis and intervention. It is increasingly recognised as good practice for organisations to benchmark their performance and at Naiad Infrastructure we find that a few meaningful benchmarks and metrics can drive positive behaviours and performance. We have experience both developing benchmarks and also helping organisations interpret their performance and making the necessary changes to excel.

The infrastructure and environmental sector is characterised by relatively few, unique, large projects, which can make benchmarking difficult. Furthermore, information about these projects and their constituent assets and operations is not readily accessible or can be expensive to obtain. In some ways this makes benchmarking all the more important, because investors, regulators and the public more widely cannot depend on open-access raw data or complete transparency to assess performance or value for money.

Miguel Amutio benchmarking all at sea
Benchmarking: what lurks beneath those simple figures? Photo Miguel Amutio

What are benchmarks for?

Benchmarks can clearly be used for simple comparisons and as yardsticks to evaluate performance against. If the benchmark is not achieved, further analysis and management intervention can then be carried out. This use of benchmarks as management metrics or KPIs is good practice, and can support a positive culture of internal challenge coupled with an appreciation of the external context.

However, benchmarks can also be used for other purposes. At an early stage in project conception, and in the absence of more specific information, benchmarks can be used as rough estimates. An appreciation of exactly what the benchmark applies to is clearly vital, as well as an understanding of when it is appropriate to insist on more detailed estimating approaches.

Increasingly, as clients and contractors build long term relationships and rely less on lowest-cost, competitive tendering, then benchmarking can also provide confidence in all parties that prices are fair and reasonable.

Choosing benchmarks

Benchmarks can be selected at many different levels, ranging from very high-level strategic benchmarks which relate to the success or failure of an organisation down to low-level, detailed benchmarks which are useful ‘rules of thumb’ to use in daily operations. For example, it may be appropriate to benchmark and monitor the productivity of maintenance operations, simply in order to support a continuous improvement culture for the organisation.

In general however, the benchmarks that are most of interest are those which reveal insights about how the investment performs or costs and relates that to tangible measurements. Benchmarks that connect operational activities and financial outcomes are often particularly of interest. For example, setting operational availability thresholds (‘uptime’) in renewable energy generation reflects both the experience gained on previous deployments and the generation targets required by a specific investment case.

What are the challenges?

As mentioned above, many aspects of infrastructure projects are highly unique. This may be because they are very specific to the local environment or topography (like a high-speed rail line running through mountains or plains)

This uniqueness makes it challenging to make robust generalisations from historical data. In other words, the cost or performance of a particular project or asset may not translate to other, superficially similar, projects and assets. For example, proposed high-speed rail project costs have been found to be sensitive to the nature of the urban approaches and whether dedicated line is required at these points. A longer discussion on these findings can be found in PWC (2016).

It is often not known or appreciated in advance which variables the benchmark will be sensitive to, and so organisations may wish to take an exploratory approach to constructing benchmarks, rather than assuming that superficially similar assets or projects can be classed together.

Other significant challenges are in the complexity or cost of acquiring relevant and specific data, which may require the reconfiguration of corporate systems or the acquisition of new analytical tools and external data sources. However, a great deal can often be achieved with existing internal capabilities and staff engagement and Naiad can help organisations make the most of these assets.

What guidance is available?

Useful guidance has been published in this field, such as the Infrastructure Project Authority’s ‘Best Practice in Benchmarking’ to which Naiad’s Principal Consultant contributed. This focuses on internal benchmarks which provide confidence to client organisations and the public sector in investment decision-making.

There is also guidance and commentary looking at financial benchmarks of more interest to investors and financial asset managers. EDHEC Infra have compiled a number of benchmarks and indices for the sector, drawing on over 1,000 historical projects from the early 2000’s.

We would be delighted to discuss your existing benchmarking practices and plans for the future. Just contact us via the form on our Home page.