Gap Analysis; Have you ever compared your current lifestyle to one you aspire to have?
That is the same as the principle of gap analysis for businesses. Gap analysis is not strictly business-related though; it is rather a universally applicable technique typically used to evaluate, develop and improve any form of output. For example, a company may be looking to sell 10% more units than they did in the previous year, or a service company may use gap analysis to compare the standard of service they provide, to the standard of service they expected to provide customers with.
It is a tool that many people use subconsciously when faced with a problem that needs to be solved. On the hand, gap analysis should not be viewed as a problem-solving utility per se; but more of a problem-identifying method, so that it can easily be applied to a variety of situations.
From a business perspective, analysis and evaluation are essential to growth in a company; however, gap analysis does not provide the means of improvement. It is frequently used as an Internal Rate of Return (IRR) measurement to manage asset-liability with interest rate risk or liquidity risk over a period of time. There is one major shortcoming with using this method; it is only valid for fixed cash flow assets.
It is widely recognised that there are three main steps that are essential to the analysis. The first two steps consist of simply identifying ‘what is’ and ‘what should be’—this outlines what the gap is. In order to do this, you must take into account both internal and external factors. Customer satisfaction and shareholder/investor contentment are two important aspects to consider and ensure with any kind of change to business proceedings. Also, with the market environment constantly fluctuating, it is important to adapt accordingly to continue competing.
The third and final step is filling in the gap between step one and step two; establishing what needs to be done and how in order to achieve the desired change. Gap analysis does not offer much more for this step, and this stage can be extensive and tedious; nevertheless, the process can be aided with SWOT (strengths, weaknesses, opportunities, threats) analysis. By listing characteristics of the company it presents you with an idea of what assets and flaws can be exploited or avoided.
So whether it is to increase profit or performance, or just for personal improvements, gap analysis is a simple and easy process to follow. Identifying what exactly need to change and the desired outcome forms a basis to build on in the right direction.
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