A gap analysis is a tool for improving business performance. Its purpose is to find the gaps between a current state and a desired state. By understanding what these gaps are, it is possible to make changes that will move your business toward its desired state. For example, if your company has annual revenues of £260,000 and wants to achieve annual revenues of £0.6 million, it has a gap of £390,000. Preparing a gap analysis can be a long and involved process, but is not a difficult process.
- Skill level:
Write the goals for your organisation. These might be such things as improved client satisfaction, reduced manufacturing costs, or the successful implementation of a new marketing strategy.
List specific key performance indicators under each of your goals. The key performance indicators will vary depending on your goals, but they must be measurable. For example, if your goal is increased profitability, your key performance indicators should include such things as return on investment, return on equity and profit margin. If your goal is increased employee satisfaction, your key performance indicators should include employee satisfaction levels (based on surveys) and rates of attrition.
Record the target level beside each key performance indicator. For example if the key performance indicator is the number of days that it takes to get a product to market, write the desired number of days to get a product to market, e.g., 30 days.
Calculate your current state using the same key performance indicators and recording the results.
Measure the gap between the current state and the desired state by calculating the difference between the key performance indicators of your current state versus the same key performance indicators of your desired state. For example, if your goal is increased profits and your key performance indicator is return on equity, you would calculate the difference between your desired return on equity and your current return on equity.
Record in the analysis all of the gaps that exist between the present state and the desired state of your organisation.
Write a list of recommendations based on the gaps. The purpose of a gap analysis is not simply to find the gaps between the present state and the desired state, but also to create a plan to move from the present state to the desired state. Your recommendations should reflect the specific gaps identified and offer potential solutions for reducing or eliminating them.
Tips and warnings
- Gap analyses should be formed on a regular basis. It is not sufficient to perform a gap analysis, make recommendations and then walk away. After you have made changes based on recommendations from the gap analysis and given the changes time to take effect, you should perform a gap analysis again to determine if the gap has narrowed, widened or remained the same. This dynamic process will allow you to make ongoing improvements to your business.
- Depending on the type and number of your key performance indicators, measuring the gap between the current state and the desired state can be a simple process or it can be quite involved. You may require the use of computer software to perform the analysis if it involves large amounts of quantitative data.
- The analysis is only as good as the data. If your key performance indicators are inaccurate, you risk creating problems rather than solving them.
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