Benchmarking tools for public risk management programs.

• Author: Weller, Alfred O.

Benchmarking can be an effective tool to improve the performance of risk management programs.

Editor's note: Reprinted and adapted from Public Risk, May/June 1998, with permission.

Many finance officers are confronted today with the challenge of improving risk management programs. To assess improvement in performance it is important to establish a baseline by measuring actual experience and setting targeted levels of performance. This article outlines benchmark techniques and their applications in the risk management area.

A benchmarking study is typically used to connote a comparative analysis involving internal or external performance measurements. Historically, the term benchmark traces its origins to the 1791 British Ordinance Survey (BOS). The BOS used the mark on rocks to identify altitude and elevation. The horizontal line above the arrow was a slit in the rock that formed a temporary bench for a surveyor's leveling staff. Thus, conceptually these original benchmarks correspond to measuring a level of performance in contrast to current usage that seeks to use the benchmark to improve performance.

The performance to be improved might be general or specific. If a performance objective is to reduce the number of automobile incidents by 20 percent, it can be made more specific by limiting the objective to private passenger vehicles in one arm (e.g., city officials) of a government. Or, it can be made more general by expanding the objective to the annual cost of automobile incidents to a public entity.

A benchmarking study involves the following steps:

* set a benchmark(s) that represents management's expectation of performance;

* measure actual experience;

* compare the measurement to the benchmark; and

* identify and implement appropriate steps to improve performance.

The central challenge of risk management benchmarking is how to make best use of available data to establish benchmarking, evaluate performance relative to them, and identify opportunities for improvement. But good studies have fringe benefits. Through providing clear performance evaluations, benchmarks facilitate communication both within and among government entities - and they focus and clarify objectives.

Professional Interpretation

Successful use of benchmarks for public risk entities requires both professional risk management skill and familiarity with government operations. For example, suppose one were to compare the average cost per liability case in the United States to that of a specific public entity. If the entity is in a state with limitations on liability claims against governments, the national benchmark would be too high because it includes states without such limitations. Therefore, a national benchmark is not a reasonable comparison for benchmarking in this case. If the entity is in a state without limitations, the national benchmark would be too low...