Gap Analysis

Gap analysis is a business assessment tool used to compare actual performance with desired or expected performance. The “gap” identifies the difference between current and target outcomes, highlighting areas that need improvement. In finance, gap analysis is used to assess financial performance, risk management, operational efficiency, and strategic alignment. This technique helps companies identify shortcomings, set goals, and develop action plans to close the gaps.

Example

A company performs a gap analysis to compare its current sales against its sales targets. The analysis reveals a shortfall, prompting the company to adjust its marketing strategy to achieve its goals.

Key points

• Compares current performance with desired targets.

• Identifies gaps that need to be addressed for improvement.

• Used in finance, operations, risk management, and strategic planning.

Quick Answers to Curious Questions

Why is gap analysis important for businesses?

It helps organizations identify performance shortfalls, understand the reasons behind them, and develop strategies to close the gaps and achieve goals.

How can gap analysis improve financial performance?

By identifying areas of underperformance, gap analysis enables companies to allocate resources effectively and implement targeted improvements.

What are the key steps in conducting a gap analysis?

Steps include defining objectives, measuring current performance, identifying gaps, analyzing root causes, and creating action plans to bridge the gaps.