Question

Explain “benchmarking” and its purpose.

Answer 1

Benchmarking is a process through which the performance of one business can be compared with other and evaluated as to how is he doing. Let's say a fund manager invest in a portfolio whose risk is similar to the S&P 500, now S&P 500 can be used as a benchmark to measure the performance of the fund manager. Let's say the S&P 500 return over the last 5 years were 12% but fund manager generated a return of 16%, clearly the fund manager outperformed the index. The purpose of benchmarking is to be able to evaluate the performance in comparison with other. Another purpose of benchmarking is to compare your performance and improve where it is not doing well. Benchmarking can actually help immensely in increasing the efficiency of the business project. It can help in comparing different units of the business and evaluate its performance vis a vis market and help in meeting customer expectation.