Sunday, July 29, 2007

Management Lite & Ezy 41 – The Factor-Rating Method

There are instances when we need to evaluate various alternatives and select the best one. For example, when a U.S. company plans to outsource its call center to Asia, it can consider one of these countries: India, Malaysia and The Philippines.

The factor-rating method is a useful tool to help us make decision. It involves six steps:

  1. Develop a list of relevant factors which affect our choice.
  2. Assign a weight to each factor to reflect its relative importance.
  3. Develop a scale for each factor, e.g. 1 to 10 or 1 to 100 points.
  4. Determine the score of each factor using the scale in step 3.
  5. Multiply the score by the weights for each factor and total the score for each alternative.
  6. Make a decision based on the maximum point score.


Example

I wanted to buy a new car. Based on my budget, I narrowed down my choices to Honda City and Toyota Vios. I then applied the factor-rating method to evaluate each of these cars. The scores are given in the following table:

(Click to enlarge:)

As you would expect, I bought the City.

Reference:

Jay Heizer & Barry Render, “Operations Management”, 8th edition

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