GAAP Analysis: In business and economics, gap analysis is a tool that helps a company to compare its actual performance with its potential performance. At its core are two questions: “Where are we? ” and “Where do we want to be? ” If a company or organization is not making the best use of its current resources or is forgoing investment in capital or technology, then it may be producing or performing at a level below its potential. This concept is similar to the base case of being below one’s production possibilities frontier.
The goal of gap analysis is to identify the gap between the optimized allocation and integration of the inputs (resources) and the current level of allocation. This helps provide the company with insight into areas which could be improved. The gap analysis process involves determining, documenting and approving the variance between business requirements and current capabilities. Gap analysis naturally flows from benchmarking and other assessments. Once the general expectation of performance in the industry is understood, it is possible to compare that expectation with the company’s current level of performance.
This comparison becomes the gap analysis. Such analysis can be performed at the strategic or operational level of an organization. Gap analysis is a formal study of what a business is doing currently and where it wants to go in the future. It can be conducted, in different perspectives, as follows: 1. Organization (e. g. , human resources) 2. Business direction 3. Business processes 4. Information technology Gap analysis provides a foundation for measuring investment of time, money and human resources required to achieve a particular outcome (e. g. to turn the salary payment process from paper-based to paperless with the use of a system).
Note that ‘GAP analysis’ has also been used as a means for classification of how well a product or solution meets a targeted need or set of requirements. In this case, ‘GAP’ can be used as a ranking of ‘Good’, ‘Average’ or ‘Poor’. This terminology does appear in the PRINCE2 project management publication from the OGC (Office of Government Commerce). The need for new products or additions to existing lines may have emerged from portfolio analyses, in particular from the use of the Boston Consulting Group Growth-share matrix, or the need will have emerged from the regular process of following trends in the requirements of consumers.
At some point a gap will have emerged between what the existing products offer the consumer and what the consumer demands. That gap has to be filled if the organization is to survive and grow. To identify a gap in the market, the technique of gap analysis can be used. Thus an examination of what profits are forecasted for the organization as a whole compared with where the organization (in particular its shareholders) ‘wants’ those profits to be represents what is called the ‘planning gap’: this shows what is needed of new activities in general and of new products in particular. The planning gap may be divided into three main elements: