Business & Finance

Back to Facility Manager Contents

Back to Home

Through the years there have been many attempts at formulating and conducting operational and financial benchmarking studies in the public assembly facility industry. Other than those with generally limited and narrow parameters, most have largely failed to live up to their initial promise, particularly those involving financial benchmarks. One key reason for this lack of success is that the public assembly facility industry is highly variable in ways almost too numerous to count. When contemplating a benchmarking study, just considering the variances in frequency and types of events and the operational models that we have is enough to make one throw up her hands and say, “I give up!”

Last year, after previously conducting several smaller scale financial and operational benchmarking studies related to convention centers and performing arts venues, we embarked on a significant convention center benchmarking exercise. This particular exercise was designed to educate our local policy makers and facilitate the approval of our operational budget and requested public support. The project ultimately proved to be successful along several lines: 1) a sizable number of facilities willingly participated; 2) sufficient work was devoted to the project to ensure accurate and meaningful benchmarks were developed; 3) the benchmarks offered a variety of effective ways to compare our operational and financial results over the five-year period of the study; and 4) the local policy makers became much better educated about our operational and financial efficiencies, and ultimately approved our budget in the face of difficult municipal finances.

The success (and trials and tribulations) of this comprehensive benchmarking project has led me to believe that despite numerous challenges, benchmarking can be a very successful and meaningful exercise within the industry, and one that we should continue to pursue with energy.

What does one need to consider in order to conduct a successful benchmarking study? First and foremost, the purpose and goal of the study must be identified. For instance: How will the results of the exercise be used and by whom? Will it be used by facility management to measure their performance against others and to identify areas of improvement? Will it be seen or used by public policy makers as a “gut-check” on how the local facility’s performance stacks up against others? Will it be used primarily for information released via public relations to the general public?

Looking at different ends of the scale, there certainly is a big difference between the all-too-common exercises where comparisons are quickly gathered to satisfy requests from policy makers or board members versus detailed multi-year benchmarking exercises whose primary goal is to assist facility management. A benchmarking exercise is truly successful, beneficial and valid only if it results in meaningful and useful data that facility management can utilize to better their operations.

Before proceeding on the pieces necessary for a successful study, I’d like to expand on the topic of studies quickly gathered to satisfy policy makers or board members. Of the numerous benchmarking exercises I have assisted on in the past, the majority have been conducted by 3rd parties on behalf of a particular facility. I’m sure all were ultimately successful to an extent. But some of these studies were what could be called “grab & go” exercises where the data is quickly assembled without significant regard to ensuring the existence of consistent and accurate benchmarks.

These studies were most likely completed and presented to the facilities’ board and/or public policy makers who acknowledged that the benchmarking effort was made. The study may very well have then been put on a dusty shelf, or tossed away. Successful? Yes, in the sense that the board or public policy makers were satisfied that the effort was made. Meaningful and useful from a management tool perspective? Not likely because the data from the various facilities were probably highly inconsistent in nature and therefore provided no meaningful basis for comparison between facilities.

An over-used example of a common “grab & go” benchmark with typically little management value is “operating revenues” calculated against per square feet, per attendee, or worst of all, per event. This benchmark suffers from: 1) differing interpretations of “what is an operating revenue”; 2) existence in some facilities of significant, atypical operating revenues (such as parking revenues for convention centers); and most importantly 3) wide variances between facilities in the use of in-house versus contracted revenue producing services. Unless they are addressed, these issues render the operating revenue benchmark as little more than casually interesting data with no effective facility comparison use.

After determining the purpose and goals of the benchmarking exercise and how the results will be used and by whom, the next step is to determine what specific benchmarks should be used to most effectively meet the goals and satisfy the users. This is, unfortunately, much more easily said then done, depending upon the aggressiveness and complexity of the goals.

Careful comparison of available benchmarks may be warranted. If the goal is to investigate simple, “single data input” operational benchmarks such as the nature of food & beverage contracts (is it in-house, commission based contract, management fee contract, blended contract, etc.?), the benchmark goes without saying and its selection straightforward. But many financial benchmarking goals can be addressed in multiple ways, and each suitable benchmark likely has multiple data inputs.

How and by whom will the data be collected and analyzed? This certainly can’t be adequately answered unless the previous questions are considered. Three basic choices for data collection and analysis are: 1) 3rd party consultants; 2) internal facility staff; or 3) use of data collection and presentation systems, such as the increasingly popular “dashboard” technology. If your goals and resulting benchmarks are straightforward and simple, and not subject to much chance of error and/or interpretation, dashboard-style data collection systems can be very efficient and cost effective.

On the other end of the spectrum, projects with numerous, complex financial benchmarks require internal facility staff to insure that the benchmarking results are accurate, valid and useful. As an example, the operational-revenues-per-attendee benchmark is fraught with inconsistencies between facilities which must be carefully adjusted and ironed out before the benchmark can come close to providing useful data as a management tool. This requires careful scrutiny of financial data from each facility, preferably by staff with combined operational and financial backgrounds.

Finally, 3rd party consultants can be an attractive choice, particularly if the users of the benchmarking study require an independent party to conduct the study. This is often the case when the audience includes public policy makers. Third party consultants offer a wide spectrum of industry financial and operational expertise. The good ones offer solid results as long as the benchmarking goals are relatively straightforward without significant complexity.

All three choices offer advantages and disadvantages. The best choice is a careful match against project goals, complexity of benchmarks to be used, nature and expectations of project audience, and monetary resources and availability of internal staff resources/expertise.

As you finalize project goals and benchmarks to be used, and the method of data collection and analysis are considered, the following points may prove helpful in developing and completing a successful benchmarking exercise depending upon the individual circumstances:

Overcoming anxiety of participation, sharing of data and ramifications of final results; commit appropriate time and resources. These are all self explanatory issues that have been relatively large contributors to the lack of effective, broad-based benchmarking studies in the past. However, the anxiety issues have more bark than bite. A significant majority of facilities are very interested in participating in studies, particularly if they feel the results will be beneficial. The bigger issue seems to be the inability, for a variety of reasons, to commit the time and resources to ensure a successful study.

Keep it simple, initially. Do this if you are developing a benchmarking project that does not require a specific deadline for completion, i.e., it is something you can and want to develop and modify over time. This avoids bogging down an earnest effort at a valid and useful study while allowing the opportunity to build up additional useful benchmarks over time.

Include facilities that more closely resemble yours in terms of market focus and size. Common sense here. Most benchmarks (but not all) work better and are more easily made valid between comparable facilities.

Screen each proposed benchmark for overall validity, and then, as much as possible, screen each actual data point for accuracy and appropriateness. These can be tough ones to tackle. They take time, patience and experience, but the more that is done along these lines, the more useful the results. “Screening for overall validity” essentially means asking the question, “Does the benchmark provide meaningful and useful comparative information between facilities?” For example, “overall operational revenue by event” generally is not a valid comparative bench- mark, and therefore should not be used. On the other hand, given similar markets, “gross food & beverage revenue by attendee” is often a good comparative benchmark. Further, does each facility calculate or report data for a given benchmark the same way?

For example, there are significant differences in how facilities report occupancy. Not making adjustments for these differences damages the validity of the benchmark comparison between facilities. Finally, screening or spot checking individual data points, either by 3rd party consultants or by facility staff, generally requires cross checking the individual data supplied by each facility against the facility’s financial statements and certain operational documents (such as floor plans). This can be very time-consuming depending upon the extent of checking done. But as a result of checking I have come across and corrected everything from simple numerical transposition errors to discovering a significant error in stated rentable square footage. The facility in question used a chunk of space interchangeably between exhibit and meeting use, and over time fell into the mistake of double counting the space!

Utilize at least three or four years’ worth of data, the longer the better. Other than straightforward operational benchmarks (such as “the nature of food & beverage contracts”), the inconsistent nature of our business demands data over an extended period of time to help smooth out significant peaks and valleys, thereby adding validity and usefulness to the benchmarking results.

Don’t bend the benchmarks to achieve the goal. Instead, allow the benchmark to provide information that will be meaningful.

Acknowledge that due to the many facility operational and financial differences inherent within our industry, no benchmark is perfect and that differences in opinion on the validity of individual benchmarks will always occur!

Benchmarking … an exercise fraught with issues, rendering it largely useless within the industry? I say not! While we may never be able to unanimously agree that Facility XYZ is the “standard bearer” of the industry with the lowest operational expenses per attendee, with patience, expertise and effort, a large number of benchmarks can be very effectively utilized by facility management as a tool to improve performance and results.

Mark Emch is the vice president of finance for the San Diego Convention Center Corporation. He can be contacted at mark.emch@sdccc.org.