As a consultant working with your clients to improve company performance, one of the most important things you do is assist them in analyzing performance problems. You and your client’s ability to analyze what is going on with performance and gain insights into a problem can guide improvements.  

Measuring performance provides your client with the basis for improving, but until something is changed, the problem could prevent your client from getting favorable results. But, before you can decide what improvements to make, you must first analyze the performance problem. 

understand the performance problem
Before you can decide what improvements to make, you must first analyze the performance problem. 

To understand more about analyzing performance problems, let’s look at 6 steps for analyzing the problem in more detail.

6 Steps to Analyze the Performance Problem

1. Review your revenue variances. 

An effective approach to analyzing performance problems is to track progress using metrics and goals. Financial reports provide a way to track the progress of your income, revenue, expenses, etc. Your client should be performing a regular review of financial reports that includes comparing the company’s actual revenue to projections. 

Projections are a financial representative of your client’s goals. Essentially, what you are doing when comparing revenue to projections is comparing variances in what the company did in a specific period to what the company had set out to do for the same period. Variances are usually reported in dollar amounts or percentages. 

It is also helpful for your client to review variances from period to period and year to year to show how the business is performing during different seasons and annually, respectively. Also, review the variables across different areas, departments, and product and service lines. 

By tracking the progress of the company’s performance, you and your client can recognize that there are problems that need improvement.  

The problems will become evident where variances in the actual revenue compared to the projections are significant. The problems could signal underperformance, cost control, lack of sales, or something else. But do not jump to conclusions. A tool like the Profit Enhancer Analysis will give you the further investigation required to help you and your client evaluate the reason behind the problem. 

2. Research potential reasons for variances. 

Accurate identification of the performance problem is crucial before you can determine what you need to improve. Your variance analysis can help you identify where the problem exists in terms of department, product, service, process, or other place in your company. However, more research is necessary to identify if you have an internal or external problem.  

Internal problems to investigate include staffing shortages, technology issues and upgrades, and equipment downtime. External problems to investigate include increases in vendor expenses, availability of materials and supplies, seasonal issues, weather and economic trends. These are by no means complete lists of internal and external problems, just examples. 

3. Review non-financial factors. 

It could be helpful to go back to non-financial factors from your projections and review them in greater detail. These could be processes and numerical information that were used to determine the projections. Sometimes, projections are overestimated in anticipation of growth. There might have been factors that affected the projections, such as a great performance year for a specific reason that would not necessarily be repeated in its numbers.  The Profit Enhancer Analysis provides consultants with an ability to increase their precision in assessing non-financial factors. 

4. Review your goals. 

It can also be helpful to review your goals, separate from your finances and other factors. Goals could involve adding touch points to increase customer service, buying new equipment to improve technology, and developing new policies with more training. Consider how plans to achieve the goals and setbacks that were encountered could have factored into performance problems. 

5. Make performance comparisons. 

Is your performance problem specific to your company, or is it an industry problem? Certain circumstances could affect the performance of your competitors, too. It is important to put your company’s performance into perspective by comparing how your competitors have performed over the same period. Furthermore, consider trends or current events that could affect customer behavior or otherwise affect the market. 

6. Decide on changes. 

As you have probably noticed, the improvements needed to address performance problems go beyond the bottom line. They can help your client’s leadership by improving communication and time management skills, clarifying goals and expectations, and streamlining processes. In other situations, they can lead to training, equipment purchases, or expansion. 

To decide on what changes to make for improvement, you can help your client understand how to use the information that was obtained from the above steps. Consider if factors were in the client’s control or not.  

If the client has control, they are better able to influence changes for improvements. Even if the problem is out of the client’s control, such as with weather or current events, improvements can be made to make the company more prepared in the future. 

The cost-effectiveness in solving performance problems using each step cannot be emphasized enough. For example, it is crucial to identify the right problem so it can be addressed adequately, as well as understand the reasons for the problem and what factors influence the problem. 

In some cases, your client might determine that the performance problem is not worth fixing at all. In other cases, your client might need to dig deeper and return to different steps to fully analyze the performance problem. 

The Profit Enhancer Analysis is an easy-to-use software to help track company performance using both financial and non-financial measurements. Contact us for a demo to learn more about how this software will help you more efficiently and effectively consult your clients.