Nick Smale of Nickleby & Co. discusses how to avoid the pitfalls of benchmarking for Facilities Managers.

Take a peek at what others have got and you know where you stand. Facilities managers call it ‘benchmarking’. In the playground it’s curiosity; at work it’s a way of seeing where you can improve, by how much and how quickly. That’s the theory.

Trouble is, what’s supposed to be objective often isn’t because of the human psyche. It gets in the way of impartiality. This article is about why you, me and everyone else can be trapped by our own minds into thinking that we are doing things right, when the reality is very different. It’s about how we can fool ourselves without knowing, what risks we will take and what we won’t. At the end it’s about reality, judgment and the intangible link between.

Trap 1 –  No need to change

You’re a facilities manager. You’ve been controlling spend for the last five years and benchmarking shows you are in the:
 
A. top 10%
B. bottom 10%

How do you feel in each case? With ‘A’ perhaps you’d feel keen to shout the results (modestly) and decide to carry on exactly the same. Not broken don’t fix it. But if it were ‘B’ perhaps you’d keep quiet. Perhaps you’d find other companies’ results were not comparable, that they had years of capital investment whereas you had none. No need to use the results.

Two results at opposite ends of the scale yet both with the same outcome. No change. The biggest risk in benchmarking, therefore, is that results are used to maintain the status quo.

Trap 2 – It’s all about the downside

Nobel prize-winner for Economics in 2002, Daniel Kahneman was, surprisingly, not an economist. He was a psychologist and won his prize for research on how we make judgments, particularly when there is some element of risk.

Following an outbreak of bird flu imagine the UK expects 6000 people to die. There are two treatment programmes (assume the predictions are reliable), pick the one you would adopt:

If Programme ‘A’ is adopted, 2000 people will be saved

If Programme ‘B’ is adopted, there is a 33% probability that all 6000 people will be saved and a 66% probability none of them will.

Most of us choose Programme ‘A’ - we’re unwilling to take risks.

Now choose:

If Programme ‘A’ is adopted, 4000 people die.

If Programme ‘B’ is adopted, there is a 33% probability that nobody dies and a 66% probability that 6000 do.

Mostly we now choose Programme ‘B’ – all of a sudden we’re willing to take risks. There is no difference between the outcomes. Why the change?  

• we value ‘certainty’, not high probability.  
• decisions are shaped by the way a question is framed.
• we accept risks to avoid a loss, which we won’t accept to make a gain.

This is how it can play in real life:  in 1982 some patients were asked to choose between treatments for cancer. To help, they were given the mortality rates for different procedures. Because 90% survival was less threatening than 10% immediate fatality, people chose surgery. And that preference was just as common amongst doctors as patients!

So what does this mean in terms of FM benchmarking? It means that we are highly unlikely to make changes because we:

a) can’t be absolutely certain we will deliver a gain
b) won’t frame questions correctly e.g. how does that missed opportunity lose us money?
c) aren’t facing catastrophic loss (because we’d already be doing something about it).

Trap 3 – The quickness of the mind deceives the eye

Now assume we’ve got our hands on some benchmark data. See what it says and come to a judgement. Simple. Except it’s not. Our brains can let us down all over again.

Read this:

"Jack and Jill went

went up the hill

To fetch a

A pail of lager"

Spot the mistake. ‘Lager’. Wrong. Try again. Got it? Not good enough. There are two deliberate mistakes.

Now read this cover taken from a Christmas Greetings card:

"To each And Everyone Of

You Greetmas Christings

And A Very Happy New

Year!"

Geddit? Good. Not many do first time.

One more then; memorise this:

"Fantastic facilities are the

result of years of scientific

facilities management endeavour."

Now cover it with your hand. Without looking, how many letter ‘f’s’ were there?

If you thought four you’d be in the majority. Six is the right answer.

So what do these examples show? When we analyse we:

a) see what we expect, not what is actually there
b) simplify and make quick judgments, we leap to conclusions based on intuition not reason
c) offer reasonable answers to questions we have not been asked (e.g “Jack & Jill’s lager”)
d) can (hallelujah!) correct our intuitive judgments if we are aware of our mind traps and concentrate. BUT we usually under-correct our intuition.

Price, cost and value

Nowhere is this truer than ‘price’, ‘cost’ and ‘value’. The three are interchanged at will.  Some definitions then:

• ‘Price’ is what we agree to pay up front
• ‘Cost’ is what we pay at the end – and that is a world apart from ‘price’
• ‘Value’ is what we get, good or bad

Take a simple benchmarking example. We agree to pay contractors £50 for a callout; £25 for every man-hour thereafter and 15% uplift on materials. That then is the ‘price’.

After six months we are paying an average £100 /job. That is the ‘Cost’. Analysing things we find two contractors have the same average job cost. Yet contractor ‘A’ spends half as much time but twice as much on materials as contractor ‘B’. Which one is correct? We don’t know. But benchmarking tells us where to look and what it’s worth.

Another question: what will give best value:?

A. Fully comprehensive maintenance @ £100 per checkout per annum
B. Reactive maintenance @ £100 per checkout per callout

The answer depends on how many breakdowns we expect. If we expect at least one breakdown per checkout p.a. ‘A’ offers more; much less than one breakdown p.a., ‘B’ is better.

That leaves us with the question of which is most likely. Try benchmarking.

Another experiment: a group of people was asked to value two sets of identical dinnerware. One set had 24 pieces all in good condition; the second had 40 pieces, of which 31 were good and 9 were broken. In isolation, people were prepared to pay on average, 50% more for the first set. When offered the two sets together, people were prepared to pay more on average for the second. We can only find ‘best value’ when compare or benchmark.  We just have to get over the psychological hurdles first.
     

Planning for benchmarking

Avoiding Trap1
Get to the data last, not first. Resist the temptation to look-see and then decide what to do. To control the risk of sticking with the status quo, prepare three plans for whatever the results turn out to be: one to deal with ‘good’, one for ‘bad’ and one for ‘fair to middling’. Prepare them in advance, and stick to them.

Avoiding Trap 2
Start with an action plan for what you are losing now. Categorise actions into ‘certain’, ‘probable’, ‘possible’ and ‘no chance’.  In your plan, commit that you are going to implement all ‘probable’ results and 50% of the ‘possibles’. Then frame your actions in terms of your current ‘losses’ whether they are service, costs, or customer satisfaction. Put out of your mind thoughts about future savings or improvements. It can be as simple as declaring that you will change x% of your cost base. How do you pick the right change? Well you could do worse than start with productivity. Jack Welch, fabled CEO of GE, targeted productivity growth. The results speak for themselves.

Avoiding Trap 3
Take your data and benchmark your own operations from within. Write down five conclusions; ignore the first and disregard the second. Test to exhaustion the reality of the last three then go back to the first and second and see if they still hold true. If they do, fine; work them into the last three.

Conclusions

If you’re not bursting to change don’t bother with benchmarks. They are fools’ gold. If you are, plan your approach before you look at any data. Measure output cost and value first and price second. Let productivity be your guiding light. And lastly, have nightmares about what you are losing now, not daydreams about what you might save tomorrow. Do all this and you might see what ‘trust’ really means!

Nick Smale is founder and director of Nickleby and Co.

Office: 01256 783600

www.nickleby.co.uk