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Best Practice

A Best Practice is a procedure, method or technique that establishes a standard way of doing things as a means of driving higher performance, success, ideal behavior or ethics.


How Best Practices Work[1]
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 practice list may also delineate safety procedures, in order to minimize employee injuries.

For corporate accountants, the generally accepted accounting principles (GAAP) represent best practices that typically govern 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 his 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 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. 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.

  1. How Best Practices Work Invetopedia