When considering benchmark data, the three important items to consider are applicability, accuracy, and timeliness. The Benchmarking Part 2 article discussed accuracy. Now let's explore the importance of timeliness of benchmarking data.
The use of old data must be avoided – both internal data and external industry data. The pace of business is ever-changing and constant shifts in the marketplace demand timely analysis. While it may seem harmless to use external industry benchmark data from two to three years ago, doing so in a changing business landscape may result in flawed, misleading, and an ineffective conclusion.
Internally, a 90-day, 180-day or even a 1-year delay in data used for benchmarking is commonplace. Attempting to measure business performance using internal company data over 12 months old is of minimal use. Your business and your industry can change quite a bit in two years.
In the normal course of industry data collection, there is often a delay. For some specialty crops, industry data may simply not be available. In that case, when industry information is lacking, it is important that you benchmark against yourself.
Benchmarking against yourself could be as simple as looking for trends in your business, say on a monthly or quarterly basis. Alternatively, you could compare this year's performance to last year's performance to help understand the impact of any changes in the market or changes you may have implemented internally. Benchmarking against yourself is equally as important as benchmarking against other industry participants.
Overall, the key to the timeliness of benchmarking is trying to use the most recent benchmark data available to account for seasonality, changes in economic cycles and other historical impacts that may not always be present, like a drought or shortage of raw materials.
Explore additional items in the benchmarking series:
How Do You Rate? Benchmarking, Part One
Are You Operating an 'Average' Farm Business? Benchmarking, Part Two
Why timing is important: Benchmarking, part three
Ready to benchmark your farm? Compare apples to apples
Brought to you by Farm Financial Standards Council. The opinions of Jim Casler are not necessarily those of Farm Futures or Penton Farm Progress.