11 July 2014
Top Tips for managing the impacts of reform: Benchmarking
Benchmarking allows your service to gauge your areas of strength and weakness, and monitor the impacts of reform in comparison to others in the industry. In addition, benchmarking helps to drive your forecasting and future planning – so you can forge ahead with confidence in your numbers.
The following tips provide you with a guide for how you can establish benchmarking for your service.
Identify and establish the key areas/activities that you want to measure and compare. Common metrics are:
- "Top line" financial ratios such as Net Profit Margin, Return on Assets and Return on Equity;
- Cost centres and expense items;
- Profits per resident group (eg. by ACFI bands).
You may also be interested in comparing whether your costs as a percentage of your income are comparable to others in your industry, or in determining what percentage of your costs are attributable to different streams within your business. For example, around 20% of the costs for a "typical" provider are absorbed by costs associated with accommodation provision.
With increasing focus on putting a "price" on the accommodation aspect of aged care, providers that don't know their metrics in this area are at risk of setting inadequate accommodation pricing points.
Find a benchmarking sample that is specific to your industry and organisation characteristics. There is little value in comparing your performance against different market sectors or against organisations that operate vastly differently to you.
Know what success looks like. Review the top performers within the benchmarking sample and critique the key points of difference between your organisation and theirs. Try and identify what may be driving these differences.
For example, drilling down into the benchmarks of the top performers in the most recent Bentleys National Aged Care Survey reveals that typical administration costs for this group were around $18.79 per resident per day, compared to the industry average of $26.13.
This equates to a difference of around $267,000 in one year for a 100 bed service – which is more than the total "value" of an aged care place in today’s market. These kind of benchmarks and analysis can be the catalyst that drives decision making around operations and organisational priorities at Board level.
Embed the benchmarking approach and methodology into your service and make a long term commitment to undertake benchmarking (at least) annually.
The true value of benchmarking as an analysis tool grows with each data collection period. Through consistently and methodically measuring your performance on a regular basis, you can more confidently forecast what changes ahead will mean for your service. Being able to track performance against benchmarks can also link in to remuneration structuring to retain key staff.
Integrate the benchmarking data into all Board and management reporting to get best "bang for buck" from the exercise.
Providers can apply the Bentleys National Aged Care Survey Benchmarking data in a multitude of ways, including:
- Finance and Funding Applications
- Audit Management Letters
- Financial Models and Forecasting
- Strategic Plans
- KPI Dashboards
- Accommodation Pricing Plans and Reviews
- Budget Setting