This document outlines a methodology for conducting an operational analysis to identify and address problems impacting business performance. The analysis begins with reviewing management reports to identify areas requiring attention. It then "drills down" into operational aspects, examining possible causes like customer acquisition, retention, products, or service. This drill-down approach analyzes gaps in areas like sales, margins, or costs. The operational analysis helps management focus efforts on solving problems at their source to improve performance.

1. Financial Analysis Series: Operational Analysis

3. Once these issues are identified, it will be necessary to “drill-down” into operational aspects that need fixing

4. There are various reasons that lower-level management and employees may not be capable or willing to identify and fix problems

5. Therefore a neutral finance-based analysis will help identify the problems and their sources, as well as point to ways of improving the problemsStatement of the issue

7. For example, if the problem is with sales volume, possible sources may be (i) acquiring new customers or (ii) retaining/growing present customers

8. Further drill-down for retaining/growing customers could focus on the product offered, cross-selling, or retention issues.

9. For retention issues, the solutions may involve (i) improve customer service of sales staff, (ii) increase focus on high value customers, or (iii) understand the reasons for customers leavingMethodology * The principle described here employs shareholder value drivers described in the Deloitte Enterprise Value Map™

10. Drill-down Methodology Gap in profitability Low sales Low margins High G&A or Financing costs Acquiring new customers Retaining/growing existing customers Other reasons (e.g. sales management) Product offered Cross-selling Retention Improve customer service Increase focus on high-value customers Understand reasons for customers leaving

12. The analysis points to where management must focus its efforts

13. Limitation: a problem may be identified, but sometimes the solution may not be immediately apparent!

14. For more information, please contactRobinBhattacharya@yahoo.comThe Result/Your benefit

15. Corporate Strategy Financial Communications Strategic Due Diligence Financial Analysis Operational Analysis Valuation Performance Monitoring & Control M&A Support Treasury Investment & Asset Management Appendix: Interrelationand fit with other analytical financial functions