What is Gap Analysis: Definition, Method, and Template

This analysis is used to determine whether a company is meeting expectations and using its resources effectively. Many companies support non-GAAP reporting because it provides an in-depth look at their financial performance. However, the non-GAAP numbers include pro forma figures, which do not include one-time transactions.

While gap analysis methodologies can be either concrete or conceptual, gap analysis templates often have the following fundamental components in common. Small businesses, in particular, can benefit from performing gap analyses when they’re in the process of figuring out how to allocate resources. Performance gaps can be measured across multiple areas of the business, including customer satisfaction, revenue generation, productivity and supply chain cost. For example, suppose you want to identify the gaps in your ketchup business. In that case, you need to decide whether to focus on product quality or marketing to identify and eliminate those gaps. At some point, a gap emerges between what existing products offer and what the consumer demands.

One way to determine your ideal future state is to look at industry standards — or the bar set by the competition. The benefit of this approach is that you know it’s achievable once a company addresses its shortcomings. The initial step is to understand where you want to apply a gap analysis model, and what you seek to get out of it. From there, you can assess what type of gap analysis you want to apply to the situation.

Benchmark your current business performance

While U.S. companies only need to follow GAAP domestically, if internationally traded or operating with a significant international presence, they often must adhere to the IFRS as well. As corporations increasingly need to navigate global markets and conduct operations worldwide, international standards are becoming increasingly popular at the expense of GAAP, even in the U.S. Almost all S&P 500 companies reported at least one non-GAAP measure in their financial statements as of 2019.

  • GAAP is also used in the preparation of financial statements by government entities.
  • It is important to acknowledge that no one tool addresses the investigation and modeling process.
  • You’d think so, wouldn’t you – and indeed, most of the other gap analysis guides tell you to do that.
  • The IASB and the FASB have been working on the convergence of IFRS and GAAP since 2002.
  • The “gap” in a gap analysis is where your business currently stands versus where you want your business to be.

So despite what you might read in other gap analysis guides, defining your current state without any idea of your future state is, at best, a useless process (and, at worst, an impossible one). As you can probably imagine from the previous examples, gap analysis comes in different forms, and each serves a unique purpose to tackle specific challenges and opportunities within an organization. By identifying gaps in technology and skills, they develop a comprehensive digital transformation strategy. But apart from that, it presents a framework for collaborating on creating a strategic plan and a common execution roadmap that is visible and aligned with all stakeholders.

Gap Analysis Examples

This is a common gap analysis that looks at the profit goals compared to the actual profits. By analyzing the gap, the company does a deeper dive into why the goals are not being met rather than just looking at the numbers on their own. When your financial statements are kept consistently month by month or year by year, you can accurately evaluate your business’s growth and performance. Accounting principles differ around the world, meaning that it’s not always easy to compare the financial statements of companies from different countries. The International Financial Reporting Standards (IFRS) is the most widely used set of accounting principles, with adoption in 167 jurisdictions.

How To Do A Gap Analysis: The 5-Step Process

Gap analysis is a great strategic analysis tool that gives us a broad framework for defining not just where we are today, but more importantly where we want to be and how we’re going to get there. Transformation encompasses the existing systems, people and project activities currently in place that convert input into output. Like the state descriptions, these components can be quantifiable or qualitative. They might cite factors such as the lack of diversity programs or the difference between the number of currently fielded calls and the target number of fielded calls. Whether the issue is financing, product quality or marketing, etc, be specific so that you can focus better.

Oracle NetSuite vs. Sage Intacct: Which Is the Better Accounting Software for Your Business?

In a Gap Analysis, BPM helps by accurately depicting the current as-is situation, including actors, processes, and interactions. BPMs are built to represent the organizational response to each event within the initial set. The process of building BPM uncovers additional business events for which further business process models may need to be created. Rich pictures[18] capture in pictorial form a holistic view of a business situation or problem and facilitate discussion and analysis. There are no rules as to what may be captured in a rich picture or which symbols should be used – it is a completely free format technique.

When conducting a gap analysis using the McKinsey 7-S framework, you can identify discrepancies in how these elements are aligned and how they impact the overall performance and success of your organization. Almost all major businesses usually assign the completion of a gap analysis template to project managers or business analysts. Gap analysis is one of the most effective ways to find growth opportunities. It gives your company a strategy based on data and the standards of your industry. In our discussion of the gap analysis template below, we’ll cover the steps of conducting it that can be applied inside a department, your entire firm, or a particular process. The four phases in the template below will help you identify and fix your research problems.

Making necessary adjustments ensures you remain agile and responsive, increasing the likelihood of successfully closing the gaps. Monitoring progress ensures that you’re moving in the right direction https://accounting-services.net/about-gaap/ and allows you to make timely adjustments when needed. To bridge the identified gaps successfully, you must allocate the necessary resources, including budget, personnel, and technology.

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