Gap Analysis

For gap analysis in wildlife conservation, see Gap analysis (conservation)

In business and economics, gap analysis is a tool that helps companies compare actual performance with potential performance. At its core are two questions: "Where are we?" and "Where do we want to be?" If a company or organization does not make the best use of current resources, or foregoes investment in capital or technology, it may produce or perform below its potential. This concept is similar to the base case of being below the production possibilities frontier.

Gap analysis identifies gaps between the optimized allocation and integration of the inputs (resources), and the current allocation level. This reveals areas that can be improved. Gap analysis 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 emerge from portfolio analysis, in particular from the use of the Boston Consulting Group Growth-share matrix—or the need may emerge from the regular process of following trends in the requirements of consumers. At some point, a gap emerges between what existing products offer and what the consumer demands. The organization must fill that gap to survive and grow.

Gap analysis can identify gaps in the market. Thus, comparing forecast profits to desired profits reveals the planning gap.: This represents a goal for new activities in general, and new products in particular. The planning gap can be divided into three main elements: