The factor rating method is calculated by assigning weights to different factors, scoring each alternative based on those factors, and then calculating a weighted score to determine the best option. Here's a step-by-step breakdown:
1. Identify Relevant Factors:
- Begin by listing all the factors that are important for the decision being made. These factors should be relevant and measurable.
- Example: When choosing a new office location, factors might include rent, accessibility, proximity to clients, availability of parking, and local amenities.
2. Assign Weights to Each Factor:
- Allocate a weight to each factor to reflect its relative importance. The weights should sum up to 1.00 (or 100%). A higher weight indicates a more important factor.
- Example: If rent is the most important factor, it might be assigned a weight of 0.40. If proximity to clients is also important, it might get a weight of 0.30. Other factors receive smaller weights based on their significance.
3. Determine a Common Scale:
- Establish a consistent scale for scoring each alternative on each factor. A common scale is 0 to 100, but other scales can be used (e.g., 1 to 5, 1 to 10).
- Example: Use a scale of 0 to 100, where 100 represents the best possible score for that factor.
4. Score Each Alternative for Each Factor:
- Evaluate each alternative based on each factor and assign a score using the chosen scale. This step often involves subjective judgment based on available data and expert opinions.
- Example: Alternative A (location 1) might score 80 on rent (relatively affordable), 90 on accessibility, and 60 on proximity to clients.
5. Calculate Weighted Scores:
- Multiply each factor's weight by the corresponding score for each alternative. This gives the weighted score for each factor for each alternative.
- Example: If Rent has a weight of 0.40 and Alternative A has a score of 80 for Rent, then the weighted score for rent for Alternative A is 0.40 * 80 = 32.
6. Sum the Weighted Scores:
- Add up all the weighted scores for each alternative. The alternative with the highest total weighted score is generally considered the best choice.
- Example: Sum up all the weighted scores (calculated in step 5) for Alternative A. Repeat this for all other alternatives (B, C, etc).
Example Table:
| Factor | Weight | Alternative A (Score) | Weighted Score (A) | Alternative B (Score) | Weighted Score (B) |
|---|---|---|---|---|---|
| Rent | 0.40 | 80 | 32 | 60 | 24 |
| Accessibility | 0.30 | 90 | 27 | 70 | 21 |
| Proximity to Clients | 0.30 | 60 | 18 | 90 | 27 |
| Total Score | 1.00 | 77 | 72 |
In this example, Alternative A has a total weighted score of 77, while Alternative B has a score of 72. Based solely on the factor rating method, Alternative A would be the preferred choice.
Important Considerations:
- The accuracy of the factor rating method depends on the accuracy and objectivity of the assigned weights and scores.
- It's crucial to involve relevant stakeholders in the process to ensure all important factors are considered and that the weights and scores are reasonable.
- Sensitivity analysis can be performed by varying the weights and scores to see how the results change. This helps assess the robustness of the decision.
- While helpful, factor rating is primarily a decision support tool and should be used in conjunction with other forms of analysis and expert judgement.
