The Benefits of Benchmarking
Making smart comparisons of your organization’s operating ratios and other metrics to those of similar organizations can create a baseline for performance improvement. That’s why ASAE and the ASAE Foundation are investing in a web-based benchmarking initiative called AssociaMetrics.
Moving the organizational performance needle—or, to begin with, making the decisions that lead to better results—depends on input from a variety of sources. But such change is driven at a fundamental level by some notion of where you want to go and what is possible.
To achieve that kind of understanding, measuring your own organization’s performance is essential, but meaningful comparison to other organizations can lead to additional insights. Those comparable data points are benchmarks, and they are an invaluable source of information for association professionals. With that in mind, ASAE and the ASAE Foundation are developing a web-based benchmarking tool, AssociaMetrics, designed to ease collection and sharing of key association data, such as operating ratio, investment, and compensation information.
In its 1993 Benchmarking Management Guide, the American Productivity and Quality Center, a benchmarking authority, created this definition of benchmarking: “Benchmarking is the process of continuously comparing and measuring an organization with business leaders anywhere in the world to gain information which will help the organization take action to improve its performance.”
Simply put, benchmarking tells you where your organization stands within the industry—and more specifically, how you compare to peer organizations—so important decisions are sure to be fully informed.
Benchmarking enables you to provide to your board a reliable basis for comparative analysis, facilitating strategic decision making. Knowing how your organization compares with others in terms of operational performance and compensation offerings, for example, gives you practical insight into where your organization excels and where it may be lagging.
When you identify an area where your organization differs from its comparable peers, the deviation provides an entry point for inquiry. A difference in performance measures does not necessarily mean there is an issue to be addressed, but looking at the variations helps your leadership explore important questions. Using data in decision making supports good stewardship, whether in the ongoing management of the organization or, at the board level, in fulfilling fiduciary duties.
“Benchmarking isn’t just an add-on; it is a necessary tool, empowering and enabling financial administrators, advisers, and fiduciaries to answer the question ‘How do I compare?’,” says Nat Bartholomew, CPA, principal-in-charge of associations and membership organizations for CliftonLarsonAllen.
Finance committees regularly use key performance ratio statistics such as liquidity and net profitability. As associations continue in their quest to strike a balance among revenue streams, measurements of membership dues versus nondues revenue in other organizations can help inform decisions to diversify.
Association leaders and boards can look to their peer organizations to find out common practices in investment policy, accounting best practices, and IT staffing and spending. Benefits and compensation information is particularly important for staying competitive. “Compensation is usually the biggest expense line for most organizations. When combined with the requirements of IRS Form 990, it is critical for the organization to use benchmarks in order to maintain and retain the talent necessary for the organization to excel,” says Mike Tryon, CPA, CGMA, senior partner at Tate & Tryon.
Actionable data starts with good data, and a good performance benchmarking initiative relies heavily on the willingness of an industry to share. Data quality and accuracy improve as participation increases. A low response rate to data-collection efforts results in samples so small that the benchmarks have little real-world meaning. By participating in benchmarking studies, organizations increase the value of the studies for their entire community.
Association professionals are famous for their dedication to their peers and to the association industry. Participating in benchmarking studies is one way they give back, contributing to the accumulation of better, more accurate data that strengthen the entire association community.