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Financial Management and Analysis of Projects : 4. Financial Management of Executing Agencies
4.4.4. Using Benchmarking Indicators
4.4.4.1. The use of benchmarks (or benchmarking)
is a widespread practice of establishing a clearly defined performance
measurement or indicator. They are used in most public and private
sector organizations, by all forms of industry and commerce, and by
military organizations. Dictionary definitions of a benchmark include
a standard, a criterion, a standard of comparison, an indicator, a
measuring stick, a yardstick, a barometer, a frame of reference, a
gauge or index, (e.g., a Plimsoll line on a sea-going vessel). Often
a benchmark is intended to denote optimum performance requirements,
sometimes it is intended to set a minimum standard below which performance
must not be allowed to fall.
4.4.4.2. Revenue-earning enterprises
in the public and private sectors have benchmarks, some are set for
them by governing, regulatory, and advisory bodies; some they set
themselves to establish local parameters of performance.
4.4.4.3. While regulators of utilities
for some countries have tried to set national benchmarks, these have
rarely proved to be practical and in countries such as the US (that
has state regulators), UK, and Australia, the regulators for telecommunications,
water, electricity, and gas have chosen to determine benchmarks for
individual companies or regional groupings of companies. This is because
each organization (and project) is unique.
4.4.4.4. Benchmarks for nonrevenue-earning
projects are more difficult to establish. Non-financial mechanisms
need to be used to indicate performance. Benchmarks/indicators such
as "Mortality per million of population under age 45"; of
"Percentage reduction in traffic accidents in urban areas",
are typical.
4.4.4.5. The Multilateral Development
Banks have tended to avoid the use of the word "benchmark"
in favor of "indicator". A "benchmark" is
regarded as having primarily an engineering connotation-a standard
of performance that must be achieved or must succeed, whereas an "indicator"
for use by these banks has come to be regarded as a form of measurement
to determine progress towards project objectives.
4.4.4.6. The characteristics, or elements/ingredients
of a performance indicator can be agreed between a borrower/EA and
ADB at project appraisal and the resulting formula can generate a
benchmark or indicator that the project is designed to achieve. Throughout
implementation, and often during the operational period of a project,
the performance of each defined characteristic or element is applied
to the formula to provide the most recent measure of performance.
The result is to be compared with the benchmark or performance indicator
agreed between the parties at appraisal.
4.4.4.7. For the financial analyst this
means that, in addition to the traditional financial performance indicators,
supplementary benchmarks or indicators may need to be agreed with
the borrower.
4.4.4.8. It is good practice to select
no more than about 12 benchmarks or indicators. While 12 is not an
absolute rule, the use of more can be confusing, and less may not
provide the necessary wide coverage. About half this number should
focus on implementation, and the remainder on outcomes and impact
for use in project supervision and evaluation.
4.4.4.9. The Knowledge Management section
of the web-based Guidelines provides a copy of the World Bank's Performance
Monitoring Indicators Handbook. This includes a detailed description
of approaches to the compilation of performance indicators and about
15 pages of indicators for nine sectors.
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4.4.3. Performance Indicators | Next
4.4.5. Selecting Indicators and Covenants |
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