By Brian E. Ravencraft
“Benchmarking” is a concept that is used to analyze and better understand the farm as a business. Diagnosing performance means understanding business concepts such as profitability and efficiency, identifying the problems that prevent the farm from achieving its potential and formulating strategies and actions to improve its business performance.
Many organizations talk about benchmarking but few actually do it. It is important for you to understand the basics of benchmarking and how you can take advantage of the process.
What is benchmarking? Robert Camp defines benchmarking as the “search for industry best practices that lead to superior performance.” Put simply it is the process of identifying, understanding and adapting outstanding best practices and high performance from organizations anywhere in the world and then measuring actual business processes against your organization to help it improve it’s performance.
When using benchmarking in farming, it involves gathering data about the best performing farms and comparing them with other farms. Benchmarking can show how higher levels of performance can be achieved. Many insights can be gained through a benchmarking exercise. It can uncover problems of production, management practices and other factors that affect productivity, cost of production and profitability. These insights and discoveries can be used to improve farm performance.
Farmers often do benchmarking informally. A farmer sees another farmer with a larger harvest or one who gets a better price for the same product at the same market. Why is this so? A farmer hears of another farmer who reduces costs by introducing a new technology. Should she or he do the same? By observing and talking to successful farmers, others can learn how to improve the performance of their farms. Informal benchmarking can result from something as straightforward as a walk around someone else’s farm.
However, for best results farmers will need to learn how to benchmark through a more systematic approach. Formal benchmarking takes farmers through the following steps:
- Examine their own farms and look for areas for improvement (identify what is to be benchmarked)
- Identify a similar farm that is performing better (a comparative farm)
- Study that farm in detail and try to find out what it is that the farmer does better (determine data collection method and collect data)
- Compare the performance of the two farms and understand the reasons for differences (determine current performance gap)
- Plan and introduce changes to their farms based on what they have learned (project future goals and cation plan).
Formal benchmarking provides a standard for comparison.
It can be applied to:
- Compare the performance of any farm with a more successful farm
- Compare the past performance of a farm
- Compare a farm plan with the actual outcome
- Compare production levels to check if the farm is technically efficient
- Compare production costs to check if the farm is economically efficient
- And examine the production and marketing processes to determine if they are sound.
Benchmarking can be either indirect — where farmers calculate their own performance indicators and compare them against published industry benchmarks; or direct — where farmers contribute their farm information into a service which generates the benchmarks or comparison with other farm entities.
Along with benchmarking, also remember the importance of having the most accurate and current financial data. This will allow you to monitor your farm’s revenue and potentially reduce costs. Also, invest in accounting software that will easily allow you to report on your farm’s financial health and make the right management choices so you can expand and grow your farm business.
Through formal benchmarking processes, farmers can improve overall farm performance, which can lead to increased profits and improved efficiencies.
Brian E. Ravencraft, CPA, CGMA is a Principal with Holbrook & Manter, CPAs. Brian has been with Holbrook & Manter since 1995, primarily focusing on the areas of Tax Consulting and Management Advisory Services within several firm service areas, focusing on agri-business and closely held businesses and their owners. Holbrook & Manter is a professional services firm founded in 1919 and we are unique in that we offer the resources of a large firm without compromising the focused and responsive personal attention that each client deserves. You can reach Brian through www.HolbrookManter.com or at BRavencraft@HolbrookManter.com.