Gap analysis is a management technique that measures why a company did not reach its expected goals. It can be used by large and small companies, and helps management decide if a new product or service will help an organization successfully enter a new market.
Gap analysis is used to determine where shortfalls are occurring while attempting to achieve goals. It can be used by several departments, including marketing, production and accounting. Each department can customize the process for its needs. Typically, businesses use gap analysis to ensure that they are maintaining their competitive edge in an industry, while departments use it to measure how well they are staying on budget.
Gap analysis is used to determine if forecasting errors were made regarding market demand. Estimating market demand, market potential, and sales are crucial steps when companies invest in a new product or service. Determining why the estimates were not met is critical in order for management to understand why the forecasts were incorrect.
Production estimates versus actual goods produced is another use of gap analysis. Actual production can vary from estimates for many reasons, including low-grade raw materials, improper conversion processes or faulty equipment. Gap analysis shows management where failures occurred in the production process by breaking down and reviewing each step.
Gap analysis is a technique for measuring budget overruns. Overruns can be broken down by department and by the managing supervisor, giving management the ability to review financial variances quickly and accurately. Specific problems can then be solved and corrective measures taken to prevent future overruns. Management may also review prices of services and goods if they see that sales are lagging the industry standard.
Companies can use gap analysis to measure their effectiveness in an industry. Using standard business ratios for their industry, companies can measure their financial strength against their competitors and discover their weaknesses. This type of gap analysis usually starts at the corporate level and gets broken down further to find why gaps exist. Corporate gap analysis will also help management find ways to increase market share and improve sales.
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