July 21, 2005
Operational analysis is a method of examining the current and historical performance of an operational (or steady-state) investment and measuring that performance against an established set of cost, schedule, and performance parameters. An operational analysis is, by nature, less structured than performance reporting methods applied to developmental projects (such as Earned Value Analysis). It is more creative in nature, and should trigger considerations of how the objectives could be better met, how costs could be saved, and whether, in fact, the organization should even be performing a particular function. An operational analysis should demonstrate that you have actually done a thorough examination of the need for the investment, the performance being achieved by the investment, the advisability of continuing the investment, and alternative methods of achieving the same investment results.
Beyond the typical developmental performance measures of “Are we on schedule?” and “Are we within budget?”, an operational analysis must answer more subjective questions in the specific areas of:
- Customer Results,
- Strategic and Business Results,
- Financial Performance, and
In addressing customer results, the analysis should focus on whether the investment is fully meeting the customer’s needs and whether the cost to the customer is as low as it could be for the results delivered. The focus here is simply on whether the investment is delivering the goods or services that it is intended to deliver.
Strategic and business results measure the effect of the investment on the performing organization itself, and should provide a measure of how well the investment is meeting business needs and, whether it is contributing to the achievement of the organization’s strategic goals, and whether it continues to be aligned with the organization’s strategic direction. The operational analysis should address itself to questions such as:
- “Does this investment help us get our job done?”
- “What strategic goal does this investment address, and how does it help us achieve that goal?”
- “Is there another organization that could be doing this work better, more efficiently or at lower cost?”
In measuring the financial performance of a steady-state investment, the operational analysis should compare current performance with a pre-established cost baseline. Financial performance is typically a very quantitative measure and should be subjected to a periodic review for reasonableness and cost efficiency. Discuss the current performance of the investment. Is performance within acceptable limits of variance for cost and schedule? If not, what corrective actions are you taking to get back on track? Has executive management concurred in the planned corrective actions?
Addressing innovation in the operational analysis is an opportunity to conduct a qualitative analysis of the investment’s performance in terms of the three previous factors. Demonstrate that you have revisited alternative methods of achieving the same customer results and strategic goals. This aspect of the operational analysis should address questions such as:
- “How could we better meet the customer needs?”
- “Could we meet these same customer needs at lower cost?”
- “How could this investment be combined with others to better meet our organization’s strategic goals?”
- “How could we make better use of technology to provide a better level of service at lower cost?”
While the exact format and detailed content of an operational analysis are the choice of the organization doing the analysis, the essential success factor is that an in-depth, critical analysis is done of the four aspects of customer results, strategic and business results, financial performance, and innovation. The guidance provided here is intended as a stimulus for critical thinking. The proposed questions provided are intended to assist you in shaping your operational analysis, not as a checklist for step-by-step completion.
- Questions regarding this section may be directed to the IT Capital Planning & Investment Control Administrator