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What Is the Right Benchmark?The Problem: Using an Ineffective BenchmarkA building products manufacturer successfully ran a sales forecasting process for many years, but the model's performance deteriorated significantly in the early 2000s. For years, housing starts had been considered the key performance benchmark for the company, but now, even though housing had been growing strongly, their own business had not. Our Approach: Determine Realistic, Reliable Benchmarks Global Insight developed end-market distribution estimates aligned with value of construction put-in-place data and forecasts. We found that the company had a significant exposure to nonresidential construction activity that was not reflected in its existing model. The traditional focus on housing starts had only worked because housing and nonresidential construction had tended to move together, but this relationship broke down in the last cycle. The Answer: Change the Benchmark Shift management focus to a custom market index appropriately weighted to the company's actual business.  |
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