What Is Post Mortem Analysis?
Post mortem analysis, in a financial and business context, is a detailed review conducted after a project, event, or period has concluded, especially following a significant outcome—be it a success or, more commonly, a failure. It falls under the broad category of Risk management and Financial Analysis, serving as a crucial tool for organizational learning and continuous improvement. The purpose of a post mortem analysis is to understand what happened, why it happened, and what lessons learned can be applied to future endeavors to enhance financial performance and strategic outcomes. This systematic examination aims to pinpoint contributing factors, both positive and negative, rather than assigning blame.
History and Origin
The concept of "post mortem" originates from Latin, meaning "after death," and historically refers to medical examinations to determine the cause of death. Its application to project or business analysis emerged much later, particularly gaining traction within project management and software development in the latter half of the 20th century. Over time, the utility of this retrospective analysis extended to various fields, including finance and economics, to examine significant events such as financial crises or corporate failures. For instance, global bodies like the International Monetary Fund (IMF) frequently conduct post-mortem analyses of financial crises to understand their causes and develop better preventative measures. One such analysis examined the dynamics of financial crises and their resolution, highlighting the complexities involved in predicting and mitigating systemic shocks.
8## Key Takeaways
- Post mortem analysis is a structured review conducted after a financial event or project to identify successes and failures.
- Its primary goal is organizational learning, focusing on understanding 'what' and 'why' rather than assigning blame.
- The insights gained inform future decision-making, strategic planning, and risk mitigation.
- It often involves examining the entire project lifecycle, from initial planning to execution and outcome.
- Post mortem analysis is a critical component of continuous improvement processes in financial institutions and businesses.
Interpreting the Post Mortem Analysis
Interpreting a post mortem analysis involves more than just listing problems or successes; it requires a deep dive into the underlying causes and effects. Analysts look for patterns, correlations, and deviations from expected outcomes. Key questions often include: What were the initial objectives, and were they met? What internal or external factors influenced the outcome? Were there any unforeseen risks that materialized, or opportunities that were missed? The insights derived from a thorough post mortem analysis can highlight strengths to be replicated and weaknesses that require attention. This process helps refine organizational processes, improve due diligence procedures, and enhance overall operational efficiency.
Hypothetical Example
Consider a hypothetical investment firm, "Diversified Capital," that launched a new thematic investment portfolio focused on renewable energy. After 12 months, the portfolio underperformed its benchmark significantly. A post mortem analysis would commence. The team would gather all relevant data: initial market research, investment thesis, individual asset performance, macroeconomic shifts, and team meeting notes. They might discover that while the broad renewable energy sector performed well, Diversified Capital's specific selection of smaller, unproven companies within the sector, coupled with an unexpected policy change in a key market, led to the underperformance. The analysis would reveal that their initial stakeholder analysis did not adequately factor in political risk for emerging renewable markets, and their internal research process lacked sufficient depth on regulatory environments. This post mortem analysis would then inform adjustments to future portfolio construction guidelines and enhance their research methodologies.
Practical Applications
Post mortem analysis is widely applied across various facets of finance and business. In the realm of investment, it's used to conduct performance evaluation of funds, portfolios, and individual asset classes to understand the drivers of returns and losses. Corporations use it following major capital allocation decisions, mergers and acquisitions, or significant strategic initiatives that either succeeded or failed. Regulatory bodies and central banks also perform extensive post mortem analyses after major market incidents or financial crises to identify systemic vulnerabilities and implement new safeguards. For instance, the collapse of Lehman Brothers in 2008 triggered extensive post-mortems across the financial industry and regulatory landscape to understand the cascade of events that led to its bankruptcy and subsequent widespread market turmoil.,,7, 6T5he Center for Economic Policy Research (CEPR) actively hosts discussions and research on learning from financial crises, emphasizing the importance of detailed analysis to inform future policy.,
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3## Limitations and Criticisms
While highly valuable, post mortem analysis has limitations. One common criticism is the potential for hindsight bias, where the outcome is already known, making it easier to connect causes and effects in retrospect than it was to predict them in foresight. This can lead to an oversimplification of complex events or a false sense of predictive ability. Furthermore, if not managed carefully, a post mortem analysis can devolve into a blame game, hindering honest self-assessment and the true spirit of root cause analysis. Data availability and accuracy can also pose challenges, especially when analyzing events that occurred long ago or involved proprietary information. Despite efforts for learning, persistent output losses often follow financial crises, suggesting that even thorough post-mortems don't always fully mitigate long-term economic impacts. T2his highlights the complexity of preventing future crises and the continuous need for robust contingency planning and systemic reform.
1## Post Mortem Analysis vs. Performance Attribution
Post mortem analysis and Performance attribution are related but distinct concepts. Post mortem analysis is a broader, qualitative, and often quantitative review of an entire event or project, aiming to understand all contributing factors—both successes and failures—across various dimensions (e.g., process, people, technology, market conditions, financial outcomes). Its scope is holistic, seeking general lessons for future endeavors.
Performance attribution, conversely, is a specific, quantitative technique used primarily in investment management to explain why an investment portfolio performed as it did relative to a benchmark. It breaks down the portfolio's excess return into components such as asset allocation decisions, sector selection, and individual security selection, attempting to quantify the impact of each. While performance attribution is a component that might feed into a broader post mortem analysis, it focuses exclusively on the financial performance aspect and its drivers, rather than the complete operational or strategic context of an event.
FAQs
What is the main goal of a post mortem analysis?
The main goal of a post mortem analysis is to learn from past experiences, whether successful or unsuccessful, to improve future performance. It aims to identify the underlying reasons for outcomes, rather than just the outcomes themselves, enabling organizations to refine their processes, strategies, and decision-making.
Is post mortem analysis only done after failures?
No, while post mortem analysis is often associated with failures or setbacks, it is equally valuable for analyzing successful projects or events. Understanding what contributed to a positive outcome can help replicate those successes and embed effective practices into future operations, enhancing operational efficiency.
Who typically conducts a post mortem analysis?
The team or individuals involved in conducting a post mortem analysis can vary depending on the scope and nature of the event. It might be the project team itself, an independent internal review board, or external consultants. For critical financial events or large-scale projects, it often involves cross-functional teams with expertise in areas like finance, risk management, and operations.
How long does a post mortem analysis take?
The duration of a post mortem analysis depends heavily on the complexity of the event being reviewed. A small project review might take a few hours or days, while a comprehensive analysis of a major financial crisis or a multi-year corporate strategy could take weeks or even months, involving extensive data collection and deep dives into various contributing factors.