Value engineering and benchmarking

Benchmarking is a process of continuously measuring and comparing business processes against other business process leaders to gain information to help improve performance.

There is some confusion as to the difference between benchmarking and key performance indicators (KPI). It is therefore important to define a KPI.

A KPI is a measure that directly monitors an aspect of performance against a project objective. It is vital to the current and future success of the project. Each KPI should be relevant (particularly to the processes) and should be challenging but achievable, quantifiable, understood, accepted and owned by the whole team.

Clients need to monitor continuously how a project is performing against set goals and objectives through its production cycle. Benchmarking should therefore be carried out at all stages of the project and the results of the findings should be acted on. Benchmarking can be used effectively at all levels of a project, as indicated below:

• at a high level (facility level), at the cost planning stage - for example, the cost of a hotel;
• at a mid-level (system level) - for example, the cost of a roof to the hotel;
• at a detailed level (component level) - for example, the cost of the roof tiles.

Objectives of benchmarking

The objectives of benchmarking are summarised below.

• To improve predictability and confidence levels in the cost plan, budgets or the anticipated final cost.
• To collate KPIs from similar projects to assist in determining best practice.
• To allow informed decision-making prior to detailed work being undertaken.
• To assist the client in understanding the value of constructing a project, compared with other current or previous similar projects, both internal and external to that particular client.

The client may also wish to monitor the performance of its suppliers' systems and components over time, as 'bottom up' data in the form of estimating norms.

The benchmarking process

• The works to be benchmarked should be identified and broken down into the appropriate detail for comparison at the chosen level (facility, system or component level). The base cost should be used in all cases to enable effective comparisons to be made with external data. The costs should therefore exclude project-specific costs and on-costs.
• Appropriate data for comparison need to be collected. Such data can be found in a variety of sources, and include published data within client organisations, consultants' internal databases and external information.
• A comparison of costs with similar works should be made. Care must be taken that the data used for comparison is on the same basis.
• Cost variances should be noted and the reasons for the difference explained or justified.
• Costs should be revisited if a satisfactory explanation for the variances is not given.

Don't over-complicate the collection of benchmark data, especially at the system and component level. If the works chosen are difficult to benchmark against, then the task of continuously measuring the actual norms will prove more challenging as the project moves through its life-cycle.