What Are Best Practices?
Best practices are a set of guidelines, ethics, or ideas that represent the most efficient or prudent course of action in a given business situation. Best practices may be established by authorities, such as regulators or governing bodies, or they may be internally decreed by a company's management team.
- Best practices are the guidelines and ethics that represent the most efficient course of action in a given business situation.
- Companies, regulators, or governing bodies can all set best practices for businesses.
- Best practices serve as a roadmap for a company on how to do business and provide the best way to deal with problems and issues that arise.
- Some steps to setting best practices in a company include doing your research of the industry and competitors, communicating broadly to everyone in the company the best practices, setting the right metrics, managing change, modifying, evaluating, and refining the best practices.
- Two common best practices that have been implemented by companies include "just in time" and "kaizen."
How Best Practices Work
Best practices serve as a general framework for a variety of situations. For instance, in businesses that produce physical products, a list of best practices may be furnished to employees, highlighting the most efficient way to complete their individual tasks. Best practices lists may also delineate safety procedures in order to minimize employee injuries.
For corporate accountants, the generally accepted accounting principles (GAAP) represent best practices. GAAP typically governs the level of detail a company is encouraged to disclose in its financial statements to ensure prospective investors can easily analyze and extract useful information.
GAAP also facilitates the cross-comparison of financial information across different companies within the same sector, which benefits both the investors and the companies they invest in, because it promotes transparency. After all, an investor who erringly buys stock in a company might skittishly dump their position on experiencing the smallest unexpected disappointment, which could consequently depress the share price.
Investment managers may follow best practices when handling a client's money by prudently investing in a well-diversified portfolio and adhering to a client's risk tolerances, time horizons, and retirement goals.
"Best practices" is a term that can be applied broadly and across a swath of industries. In the world of business, the phrase is used in connection with everything from project management to audit functions to explain the most efficient method of completing a business task.
Now, with the advent of new quality control systems came the need for a way to apply measurable benchmarks and communicate ways to rapidly implement new standards of excellence across an organization. This can be done by identifying problems, quantifying their frequencies, cultivating solutions, and monitoring the execution of those solutions to ensure they solve the core issues at hand.
Best Practices as Industry Benchmarks
Best practices can also be used as a benchmark where one company can share actionable solutions with other organizations. For example, let's say a firm is well known for its award-winning, best-in-class product distribution infrastructure. When asked to precisely describe the best practices that led to their hyper-efficiency, the company reveals that it outfits all fulfillment staffers with red markers that they may use to sign off on their highest priority deliveries.
Although companies share their best practices as a matter of routine, it would be unwise to reveal certain trade secrets that might be easily replicated by the competition.
Consequently, all red ink orders are given higher levels of scrutiny than others. As more eyes reflexively search for errors when they see red ink, more mistakes can be flagged and corrected.
Steps for Developing Best Practices
Here are eight steps for developing best practices:
- Do your homework: Research what companies in your industry do regarding best practices, in terms of customer service, hiring, promotions, production, and anything else of import.
- Share your information: Once you have determined what best practices are important, communicate this to the key individuals in your company so that everyone is on the same page.
- Define your metrics: When you determine your best practices make sure that they are measurable so that you can keep track of progress if they are being met, and any accountability.
- Manage change: Employees and others are typically resistant to change and might be when your company implements new procedures. Prepare for this resistance and develop a strategy to move forward.
- Modify and customize for your business: When implementing a best practice, modify it so that it meets the characteristics of your business and fits with your intended goals.
- Involve everyone: Like sharing your information, make certain that everyone in the organization is aware of best practices and also that they agree with them.
- Align business and customer needs: Seek guidance from other businesses or customers that might be able to help you refine and better implement your best practices.
- Evaluate and refine: As your business evolves, take stock of your best practices and refine if need be to meet the ways that your organization has changed.
Examples of Best Practices
Just in Time
Just in time (JIT) is a best practices solution focused on inventory that seeks to align the raw material orders from suppliers to the production schedule. The goal of JIT is to ensure efficiency and reduce waste by only receiving materials when needed. This also reduces inventory costs but does require businesses to forecast the demand for their goods accurately to ensure there is not an oversupply or a shortage.
Kaizen is a Japanese management philosophy that seeks to improve productivity gradually and methodically. It is a Japanese word that means "change for the better" or "continuous improvement."
Kaizen seeks to involve all employees and improve operations on a continuous basis. Characteristics of kaizen include designing a workplace to be more efficient and impactful by creating a team atmosphere, improving everyday procedures, making sure employees are engaged, and seeking to make jobs more fulfilling, safer, and less tiring.
Best Practices for Investors
With so many stocks to choose from, it can be hard to know which one to pick for your portfolio. In choosing a stock, it's important to know what you want your portfolio to look like and to keep that in mind as time goes by.
As an investor, it's critical to be aware of daily news, not only for the companies you are analyzing or have already invested in but also overall world news and financial news, as these impact stocks as well. Reading the news is probably the first step in deciding what stock to pick. Understanding which companies are trending, what sectors are primed to do well, and where the economy is heading, will give you an idea of where to start looking.
From there, you can start compiling a list of stocks that fit with what you have read. For example, if you read that new technology has emerged that has made another product obsolete (for example, smartphones making traditional landlines obsolete), you may start looking into such companies.
You can find stocks through research of who the main players are in the sector you are interested in. Conversely, you can look at exchange traded funds (ETFs) that invest in the sector. You can also use screeners to sort through companies based on a variety of factors, such as market cap and earnings. From there, a detailed financial analysis of a company's financial statements would be a prudent move that will provide you with the information you need to know in regards to what company is a healthy investment.
Best Practice FAQs
What Are Some Best Practices in Education?
Some of the best practices in education include staying proactive by ensuring your next teaching activity is prepared and set to go before the current one finishes. This allows students to be engaged by reducing disruptions. Encourage communication by involving students in the classroom setting. This can include the way in which they provide answers, and in why teaching is important. Work backward by setting an end goal and figuring out how to reach that goal with your students. Always keep your resources, such as lesson plans, so you can build upon what you have done before and refine the way you approach teaching. And lastly, be a role model by setting the examples you want your students to exhibit.
What Are Some Best Practices in Healthcare?
Some of the best practices in healthcare include training your staff so that they know how to deliver a great service and put patient care and experience as their number one priority. Ensure patient education, which has proven to help improve the overall healthcare experience. A patient that understands the what and why of their health and the care they are getting are usually happier and more comfortable. Establish a care-orientated environment by incorporating small details, such as remembering a patient's name, smiling, listening carefully, and incorporating follow-up calls.
What Are Some Best Practices in Customer Service?
Good customer service starts with good employees. Ensure you are hiring the best people and incentivizing them to join your firm and stay. This can be done through good pay and benefits as well as the overall corporate environment.
Manage customer expectations. It can be easy to tell a customer that everything will be taken care of, but sometimes this is not the case. Being upfront and honest with a customer will always keep them grounded and prevent them from being disappointed.
With customer service, the first impression counts. Make sure the first impression is perfect. This sets the tone for future engagement and shapes their opinion of the customer service they are receiving. Collect as much data as you can to help them and also personalize the experience.
The Bottom Line
Best practices are a set of guidelines that allow for the most prudent course of action in any given situation. Whether this is running a business or choosing stocks, establishing and following a set of best practices can lead to success in an endeavor and ease in navigating difficult situations. Without best practices, corporations and investors are often drifting without clarity.