What Is a Gap Analysis? (With Steps for Using One at Work)

By Indeed Editorial Team

Published November 30, 2021

The Indeed Editorial Team comprises a diverse and talented team of writers, researchers and subject matter experts equipped with Indeed's data and insights to deliver useful tips to help guide your career journey.

Monitoring the current and expected situations is important for ensuring growth, development, and profitability. While various evaluation methods can help you track progress, conducting a gap analysis is often an effective approach. Understanding what a gap analysis is can help you make better plans moving forward and highlight opportunities for improvement. In this article, we answer, "What is a gap analysis?" explain in what situations you can use one at work, present how to apply gap analyses to your role, and show several examples for individuals, teams, and businesses.

What is a gap analysis?

A gap analysis evaluates the current and ideal results of a company, team, or individual. Conducting one helps you identify aspects for improvement quickly and efficiently. It involves setting goals, measuring performances and resources, and identifying differences. By defining and analyzing these gaps, you can plan to fill them and progress with your plans. Many companies use this technique to measure the difference between assets and liabilities that have flexible risks over a period. For example, accountants may use it to evaluate the possibility of investment changes due to varying interest rates.

Where can you use a gap analysis in the workplace?

Here are some situations where you can apply gap analyses:

  • Sales: You can measure the sales made against your targets.

  • Financial performance: Monitor profit, income, and revenue levels.

  • Quality assurance: Check the quality of products and services after production or delivery.

  • Employee satisfaction: Review the motivation of employees to continue in their positions.

  • Market competitiveness: Evaluate your position or company's competitiveness against others in the workforce or market.

  • Cost control: Measure your total costs against your target expenses.

How to apply a gap analysis at work

Follow these steps to use a gap analysis in the workplace:

1. Review your current state and goals

Start by determining what company aspects to analyze. You also want to recognize your current situation before making plans for the future. You can discuss with individuals in the concerned department and examine your key performance indicators. For example, if you want to conduct a gap analysis to reduce total expenses, you can visit each department to understand how employees use resources and monitor administrative costs. Determining whether net expenses provides more valuable information than gross expenses may also be important.

While you can identify your current state through critical assessments, complementary techniques and methods can help make you more efficient. Here are examples of assessments and methods you can use with a gap analysis:

  • SWOT analysis: examines your strengths, weaknesses, opportunities, and threats. While your strengths and weaknesses are factors you can control, opportunities and threats are typically external.

  • Fishbone diagram: helps you identify what caused a issue or work challenge. Materials, measurements, machines, methods, environments, and employees are the key elements to evaluate in a fishbone diagram.

  • PESTLE analysis: enables you to evaluate macroeconomic factors that impact operations. PESTLE stands for political, economic, social, technological, legal, and environmental factors.

Related: What Is a Performance Improvement Plan? (With an Example)

2. Clarify your future state

Next, recognize the future state of your career, team, or organization. Reflect on the goals you set and ensure they are still relevant. For example, if a company changes its business model, it may be important to review its future expectations and goals. When clarifying the future state, ensure you use feedback from the current situation. For example, if team members or company executives provided useful insights, you can use that information to create goals. Ensure the targets you set are realistic and achievable.

3. Identify the gap and potential solutions

You can recognize the gap once you know the future and current state. For example, suppose you identified the company's current revenue as $200,000 and expect it to make $400,000 by the year's end. In that case, the gap is a revenue of $200,000. Take time to reflect on the difference and what it means to the company. In this revenue example, the gap implies that the company would want to generate twice its initial revenue.

4. Develop a strategy to address the gap

Create an action plan for the gap you recognized. For example, suppose you identify a negative gap in a company, which means the liabilities that change with interest rates exceed interest-sensitive assets. In that case, company executives may look to reduce the company's liabilities. Developing a strategy to address a gap typically requires you to apply the following skills:

  • Critical thinking: is the ability to examine a gap objectively and make conclusions about it. Improve your critical thinking skills by asking open-ended questions, which require more explanatory answers.

  • Problem-solving: is the ability to identify what caused a gap and create an effective solution to it. Develop your problem-solving skills by seeking opportunities to solve problems at work and expanding your technical knowledge in your field.

  • Decision-making: refers to the quality of choosing the most effective strategies to address a gap. You can improve your decision-making skills by evaluating each strategy and seeking advice whenever required.

Read more: Create an Effective Work Plan for a Successful Project (With Template)

Tips for using a gap analysis

Here are the best practices for apply gap analyses at work:

Design a gap analysis chart

A gap analysis chart is a graphical representation of the steps for analyzing gaps. It includes a section for the current and future state, required action, and anticipated results. Creating one helps you reference information quickly. For example, suppose you're working in an accounting department. By creating a chart, your team members can also see an overview of your analyses. You can also encourage team members to create a personal chart to monitor their progress.

Identify individuals responsible for the required action

After creating gap analyses charts, ensure you assign tasks to concerned individuals. This can offer direction to the team and make them more accountable. For example, suppose the required action is to develop teamwork skills and help new hires settle in their roles. You can designate team leads to handle these tasks.

Review your gap analysis chart regularly

Evaluate your progress in addressing the gap using a strategy. For long-term plans, you can review the plan annually and use data to understand changes. For example, suppose you identified a gap in financial performance and planned to address it within five years. You can set annual meetings at the end of each year to assess the financial situation and determine whether the company can reach the goal.

Examples of gap analyses

Review these examples of gap analyses to gain more insights into how to use them in your specific situation:

Example for a business

Review this example of a gap analysis for a business that makes shoes:

Hillary Terrain Inc. currently produces an average of 120 shoes daily. The company's executives recognize that production can reach an average output of 150 shoes daily. Considering the gap of 30 shoes, the company can either hire more employees, introduce better production technologies, or change production methods. After evaluating the possible strategies to address the output gap, company executives decide to hire more employees and inform the human resource manager to attract top talent.

Related: How to Develop a Strategic Business Development Plan

Example for an individual

Here's an example of a gap analysis for a financial professional:

Hannah currently spends $300 monthly on commuting expenses. Due to organizational changes, she agreed to a pay cut, receiving 85% of her base salary. She plans to spend $130 monthly in commuting expenses, creating a gap of $170 per month. To address this gap, she can either work remotely for two days a week or take the bus every day. Hannah decides to work remotely as it offers more time to handle other commitments. She tracks her expenses by monitoring how much she has left every month and allocating monthly transportation costs.

Example for a team

Review this example of a gap analysis for an accounting department:

Ground Halls has $50 million in assets and $70 million in liabilities, both of which are sensitive to varying interest rates. The company plans to have $100 million in assets and $10 million in liabilities by next year. This means it has a $50 million gap in assets and a $60 million gap in liabilities. To resolve this situation, its accounting department looks for various ways to create a positive gap. After examining its options, the accounting managers recommend acquiring fixed assets. They assign all accounting professionals to collaborate with financial analysts to identify available assets in the market.

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