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Using benchmark data to estimate cost savings

EXPERT RESPONSE FROM: Rebecca Wettemann

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QUESTION POSED ON: 16 December 2004
How do I establish possible cost savings on the basis of process improvements? In my opinion, it depends on the maturity of an organization compared to best practise in the business process. In order to do so you need benchmark data. What would be a good source for benchmark data?

Estimating potential cost savings is often a challenge. Even with benchmark data, your estimates are only as good as the assumptions around the data. A good strategy for keeping estimates realistic is to first identify the key areas of benefit, then look for benchmark data in context that provides a guide for the expected range of returns, and then do an expected and worst-case scenario for calculating the actual returns, using those calculations and assumptions to drive milestones during the project. Benchmark data is available from a variety of sources including Nucleus Research. The important thing to remember when using benchmarks is that they are only as good as their source's credibility and your ability to put them in context. An independent case study that explains how another organization achieved a certain benefit can be given more weight than marketing collateral; if you're not sure where the numbers came from or the motivations or funding of a benchmark study you'll want to add a generous sprinkling of salt.

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