Operational analysis means the procedure by which a company measures its business performance, usually project-wise. It also includes analyzing a particular investment against its expected costs, completion time, and returns. To make it easier to understand, let’s briefly discuss operational analysis of a business idea. Let’s take the example of an industry where entry is restricted due to high entrance cost – let’s say a power plant. Firstly a massive investment cost is required – you will have to buy real estate, perhaps near to a water body and a steep waterfall, or would have to make a dam. Secondly, to start producing electricity, the costs that go into keeping the plant operational are high as well. The additional equipment that will be needed to store and transfer electricity will also be a costly affair. Finding, establishing, and running distribution channel is equally expensive and hard.
The above discussion when evaluated in terms of costs and benefits would become operational analysis. It would also include feasibility of the returns as per their expected time of realization. Operational analysis is a complex process but if you don’t want to lose your investment, even for smaller projects, it is a necessity.
The reporting part is easy. Since most operational analysis are number intensive and filled with formulae, future projections, and lots of estimations and guesstimates, they need to be translated into lay man terms, or more precisely in a language understandable and convincing for the investors. Those reports that are prepared are the final part of the process known as Operational Analysis & Reporting.
It starts with the overall objectives of the company and how one or several projects contribute towards it; for instance if you are operating in a highly competitive industry, your objective may be to gain profitability through product specialization and unique selling points. Any project, investment, or research and development done towards making a newer product or modifying an existing one can be said to be in direct alliance with your overall objective. Secondly management effectiveness, operational efficiency, and resources productivity is evaluated. Services like procurement, research, inside sales support and other related departments also come into view while analyzing the overall operational efficiency of a project. Planning and products or services are also counted under this header. Finally the resources you need to achieve your targets in the pre-decided time frame are outlined and operational models are prepared to obtain the best of them at the lowest prices.
As explained earlier, operational analysis and reporting is a complex task requiring highly qualified personnel. The predictions, projections, and project completion dates evaluated and brought out of an operational analysis sets the tone for the business’s future. If an inept person is tasked with preparing an operational analysis, the chances are astronomical of losses, missed time lines, and lost market opportunities. The people who do have the necessary qualifications, however, do not come cheap if you are to hire them as permanent members of your workforce. So this can be a costly affair to keep in-house.
Secondly, the job itself of operational analysis is not one that is usually carried out on a daily basis. The performance measurement is something regular but that is done against the targets identified and set in the analysis. Therefore, if you have analysts on board permanently, there is a much higher cost than the financial return in terms of days’ work.
Thirdly, with more and more automation creeping into analysis models and the unimaginable range of scenarios for successes and failures provided by software are no match for manual human mental calculations. Therefore, if you are to keep everything under your own roof, you will also need to spend on hi-tech software and will also need to keep spending for its maintenance and updating.
With outsourcing all these financial problems are resolved with so many more benefits. Access to highly qualified professionals and modern technology, better productivity, higher efficiency, better management of performance, quick identification and resolution of any unexpected contingencies are all the benefits of having experienced outsourcing partners on board.