External Factor Evaluation (EFE) matrix method is a strategic-

management tool often used for assessment of current business

conditions. The EFE matrix is a good tool to visualize and prioritize the
opportunities and threats that a business is facing.

The EFE matrix is very similar to the IFE matrix. The major
difference between the EFE matrix and the IFE matrix is the type of
factors that are included in the model. While the IFE matrix deals with
internal factors, the EFE matrix is concerned solely with external
factors.

External factors assessed in the EFE matrix are the ones that are
subjected to the will of social, economic, political, legal, and other
external forces.

How do I create the EFE matrix?

Developing an EFE matrix is an intuitive process which works
conceptually very much the same way like creating the IFE matrix. The
EFE matrix process uses the same five steps as the IFE matrix.

List factors: The first step is to gather a list of external factors. Divide
factors into two groups: opportunities and threats.

Assign weights: Assign a weight to each factor. The value of each

weight should be between 0 and 1 (or alternatively between 10 and
100 if you use the 10 to 100 scale). Zero means the factor is not
important. One or hundred means that the factor is the most influential
and critical one. The total value of all weights together should equal 1
or 100.

Rate factors: Assign a rating to each factor. Rating should be

between 1 and 4. Rating indicates how effective the firm’s current
strategies respond to the factor. 1 = the response is poor. 2 = the
response is below average. 3 = above average. 4 = superior. Weights
are industry-specific. Ratings are company-specific.

Multiply weights by ratings: Multiply each factor weight with its

rating. This will calculate the weighted score for each factor.

Total all weighted scores: Add all weighted scores for each factor.
This will calculate the total weighted score for the company.
You can find more details about this approach as well as about possible
values that the EFE matrix can take on the IFE matrix page.

EFE matrix example

Total weighted score of 2.46 indicates that the business has slightly
less than average ability to respond to external factors. (See the page
on IFE matrix for an explanation of what category the 2.46 figure falls
to.)

What should I include in the EFE matrix?

Now that we know how to construct or create the EFE matrix, let's
focus on factors. External factors can be grouped into the following
groups:

• Social, cultural, demographic, and environmental variables:

• Economic variables
• Political, government, business trends, and legal variables

Below you can find examples of some factors that capture aspects
external to your business. These factors may not all apply to your
business, but you can use this listing as a starting point.

Social, cultural, demographic, and environmental

factors...
- Aging population
- Percentage or one race to other races
- Per-capita income
- Number and type of special interest groups
- Widening gap between rich & poor
- Number of marriages and/or divorces
- Ethnic or racial minorities
- Education
- Trends in housing, shopping, careers, business
- Number of births and/or deaths
- Immigration & emigration rates

Economic factors...

- Growth of the economy

- Level of savings, investments, and capital spending
- Inflation
- Foreign exchange rates
- Stock market trends
- Level of disposable income
- Import and export factors and barriers
- Product life cycle (see the Product life cycle page)
- Government spending
- Industry properties
- Economies of scale
- Barriers to market entry
- Product differentiation
- Level of competitiveness (see the Michael Porter's Five Forces model)

Political, government, business trends & legal factors...

- Globalization trends
- Government regulations and policies
- Worldwide trend toward similar consumption patterns
- Internet and communication technologies (e-commerce)
- Protection of rights (patents, trade marks, antitrust legislation)
- Level of government subsidies
- International trade regulations
- Taxation
- Terrorism
- Elections and political situation home and abroad

Are there other models I should know about?

The EFE matrix goes side by side with so-called IFE matrix. The EFE
matrix together with the IFE matrix leads to the IE matrix. And, the IE
matrix can be extended into so-called SPACE matrix.
IFE Matrix (Internal Factor Evaluation)
IFE Matrix (Internal Factor Evaluation)

Internal Factor Evaluation (IFE) matrix is a strategic management

tool for auditing or evaluating major strengths and weaknesses in
functional areas of a business.

IFE matrix also provides a basis for identifying and

evaluating relationships among those areas. The Internal Factor
Evaluation matrix or short IFE matrix is used in strategy formulation.

The IFE Matrix together with the EFE matrix is a strategy-formulation

tool that can be utilized to evaluate how a company is performing in
regards to identified internal strengths and weaknesses of a company.
The IFE matrix method conceptually relates to the Balanced Scorecard
method in some aspects.

How can I create the IFE matrix?

The IFE matrix can be created using the following five steps:

Key internal factors...

Conduct internal audit and identify both strengths and weaknesses in

all your business areas. It is suggested you identify 10 to 20 internal
factors, but the more you can provide for the IFE matrix, the better.
The number of factors has no effect on the range of total weighted
scores (discussed below) because the weights always sum to 1.0, but it
helps to diminish estimate errors resulting from subjective ratings.
First, list strengths and then weaknesses. It is wise to be as specific
and objective as possible. You can for example use percentages, ratios,
and comparative numbers.

Weights...

Having identified strengths and weaknesses, the core of

the IFE matrix, assign a weight that ranges from 0.00 to 1.00 to each
factor. The weight assigned to a given factor indicates the relative
importance of the factor. Zero means not important. One indicates
very important. If you work with more than 10 factors in your IFE
matrix, it can be easier to assign weights using the 0 to 100 scale
instead of 0.00 to 1.00. Regardless of whether a key factor is an
internal strength or weakness, factors with the greatest importance
in your organizational performance should be assigned the highest
weights. After you assign weight to individual factors, make
sure the sum of all weights equals 1.00 (or 100 if using the 0 to
100 scale weights).
The weight assigned to a given factor indicates the relative importance
of the factor to being successful in the firm's industry. Weights are
industry based.

Rating...

Assign a 1 to X rating to each factor. Your rating scale can be per your
preference. Practitioners usually use rating on the scale from 1 to 4.
Rating captures whether the factor represents a major weakness
(rating = 1), a minor weakness (rating = 2), a minor strength (rating =
3), or a major strength (rating = 4). If you use the rating scale 1 to 4,
then strengths must receive a 4 or 3 rating and weaknesses must
receive a 1 or 2 rating.

Note, the weights determined in the previous step are industry based.
Ratings are company based.

Multiply...

Now we can get to the IFE matrix math. Multiply each factor's weight
by its rating. This will give you a weighted score for each factor.

Sum...

The last step in constructing the IFE matrix is to sum the weighted
scores for each factor. This provides the total weighted score for
your business.

Example of IFE matrix

The following table provides an example of an IFE matrix.
Weights times ratings equal weighted score.

What values does the IFE matrix take?

Regardless of how many factors are included in an IFE Matrix, the total
weighted score can range from a low of 1.0 to a high of 4.0 (assuming
you used the 1 to 4 rating scale). The average score you can possibly
get is 2.5.

Side note...

Why is the average 2.5 and not 2.0? Let's explain using an example.
You have 4 factors, each has weight 0.25. Factors have the following
rating: 1, 4, 1, 4. This will result in individual weighted scores 0.25, 1,
0.25, and 1 for factors 1 through 4. If you add them up, you will get
total IFE matrix weighted score 2.5 which is also the average in this
case.

Total weighted scores well below 2.5 point to internally weak

business. Scores significantly above 2.5 indicate a strong internal
position.

What if a key internal factor is both a strength and a

weakness in IFE matrix?
When a key internal factor is both a strength and a weakness, then
include the factor twice in the IFE Matrix. The same factor is treated as
two independent factors in this case. Assign weight and also rating to
both factors.

What are the benefits of the IFE matrix?

To explain the benefits, we have to start with talking about one
disadvantage. IFE matrix or method is very much subjective; after all
other methods such as the TOWS or SWOT matrix are subjective as
well. IFE is trying to ease some of the subjectivity by introducing
numbers into the concept.

Intuitive judgments are required in populating the IFE matrix with

factors. But, having to assign weights and ratings to individual factors
brings a bit of empirical nature into the model.

How does the IFE matrix differ from the SWOT matrix
method?
More is better...

One difference is already obvious. It is the weights and ratings. This

difference leads to another one. While it is suggested that the SWOT
matrix is populated with only a handful of factors, the opposite is the
case with the IFE matrix.

Populating each quadrant of the SWOT matrix with a large number of

factors can lead to the point where we are over-analyzing the object of
our analysis. This does not happen with IFE matrix. Including many
factors into the IFE matrix leads to each factor having only a small
weight. Therefore, if we are subjective and assign unrealistic rating to
some factor, it will not matter very much because that particular factor
has only a small weight (=small importance) in the whole matrix.

It is important to note that a thorough understanding of individual

factors included in the IFE matrix is still more important than the actual
numbers.

Are there other models I should know about?

The IFE matrix goes side by side with so-called EFE matrix which
together lead into the IE matrix.
You might like to read about the SWOT matrix analysis, BCG matrix
model, and Product Life Cycle.
.

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Quantitative Strategic Planning Matrix (QSPM) is a high-level

strategic management approach for evaluating possible strategies.
Quantitative Strategic Planning Matrix or a QSPM provides an
analytical method for comparing feasible alternative actions. The QSPM
method falls within so-called stage 3 of the strategy formulation
analytical framework.

When company executives think about what to do, and

which way to go, they usually have a prioritized list of strategies. If
they like one strategy over another one, they move it up on the list.
This process is very much intuitive and subjective. The QSPM method
introduces some numbers into this approach making it a little more
"expert" technique.

What is a Quantitative Strategic Planning Matrix or a

QSPM?
The Quantitative Strategic Planning Matrix or a QSPM approach
attempts to objectively select the best strategy using input from other
management techniques and some easy computations. In other words,
the QSPM method uses inputs from stage 1 analyses, matches them
with results from stage 2 analyses, and then decides objectively
among alternative strategies.

Stage 1 strategic management tools...

The first step in the overall strategic management analysis is used

to identify key strategic factors. This can be done using, for
example, the EFE matrix and IFE matrix.

Stage 2 strategic management tools...

After we identify and analyze key strategic factors as inputs for QSPM,
we can formulate the type of the strategy we would like to pursue.
This can be done using the stage 2 strategic management tools, for
example the SWOT analysis (or TOWS), SPACE matrix analysis,
BCG matrix model, or the IE matrix model.

Stage 3 strategic management tools...

The stage 1 strategic management methods provided us with key

strategic factors. Based on their analysis, we formulated possible
strategies in stage 2. Now, the task is to compare in QSPM alternative
strategies and decide which one is the most suitable for our goals.

The stage 2 strategic tools provide the needed information for setting
up the Quantitative Strategic Planning Matrix - QSPM. The QSPM
method allows us to evaluate alternative strategies objectively.

Conceptually, the QSPM in stage 3 determines the relative

attractiveness of various strategies based on the extent to which key
external and internal critical success factors are capitalized upon or
improved. The relative attractiveness of each strategy is computed by
determining the cumulative impact of each external and internal
critical success factor.
What does a QSPM look like and what does it tell me?
First, let us take a look at a sample Quantitative Strategic Planning
Matrix QSPM, see the picture below. This QSPM compares two
alternatives. Based on strategies in the stage 1 (IFE, EFE) and stage 2
(BCG, SPACE, IE), company executives determined that this company
XYZ needs to pursue an aggressive strategy aimed at development
of new products and further penetration of the market.

They also identified that this strategy can be executed in two ways.
One strategy is acquiring a competing company. The other strategy is
to expand internally. They are now asking which option is the better
one.
(Attractiveness Score: 1 = not acceptable; 2 = possibly acceptable; 3
= probably acceptable; 4 = most acceptable; 0 = not relevant)

Doing some easy calculations in the Quantitative Strategic Planning

Matrix QSPM, we came to a conclusion that acquiring a competing
company is a better option. This is given by the Sum Total
Attractiveness Score figure. The acquisition strategy yields higher
score than the internal expansion strategy. The acquisition strategy
has a score of 4.04 in the QSPM shown above whereas the internal
expansion strategy has a smaller score of 2.70.

How do I construct a QSPM?

You can see a sample Quantitative Strategic Planning Matrix QSPM
above. The left column of a QSPM consists of key external and internal
factors (identified in stage 1). The left column of a QSPM lists factors
obtained directly from the EFE matrix and IFE matrix. The top row
consists of feasible alternative strategies (provided in stage 2) derived
from the SWOT analysis, SPACE matrix, BCG matrix, and IE matrix. The
first column with numbers includes weights assigned to factors. Now
let us take a look at detailed steps needed to construct a QSPM.

STEP 1...

Provide a list of internal factors -- strengths and weaknesses. Then

generate a list of the firm's key external factors -- opportunities and
threats. These will be included in the left column of the QSPM. You can
take these factors from the EFE matrix and the IFE matrix.

Step 2...

Having the factors ready, identify strategy alternatives that will be

further evaluated. These strategies are displayed at the top of the
table. Strategies evaluated in the QSPM should be mutually exclusive if
possible.

Step 3...

Each key external and internal factor should have some weight in the
overall scheme. You can take these weights from the IFE and EFE
matrices again. You can find these numbers in our example in the
column following the column with factors.

Step 4...

Attractiveness Scores (AS) in the QSPM indicate how each factor is

important or attractive to each alternative strategy. Attractiveness
Scores are determined by examining each key external and internal
factor separately, one at a time, and asking the following question:

Does this factor make a difference in our decision about which strategy
to pursue?

If the answer to this question is yes, then the strategies should be

compared relative to that key factor. The range for Attractiveness
Scores is 1 = not attractive, 2 = somewhat attractive, 3 = reasonably
attractive, and 4 = highly attractive. If the answer to the above
question is no, then the respective key factor has no effect on our
decision. If the key factor does not affect the choice being made at all,
then the Attractiveness Score would be 0.

Step 5...
Calculate the Total Attractiveness Scores (TAS) in the QSPM. Total
Attractiveness Scores are defined as the product of multiplying the
weights (step 3) by the Attractiveness Scores (step 4) in each row.

The Total Attractiveness Scores indicate the relative attractiveness of

each key factor and related individual strategy. The higher the Total
Attractiveness Score, the more attractive the strategic alternative or
critical factor.

Step 6...

Calculate the Sum Total Attractiveness Score by adding all Total

Attractiveness Scores in each strategy column of the QSPM.

The QSPM Sum Total Attractiveness Scores reveal which strategy is

most attractive. Higher scores point at a more attractive strategy,
considering all the relevant external and internal critical factors that
could affect the strategic decision.

Can I compare more than two strategies using a

QSPM?
Yes, in general, any number of alternative strategies can be included in
the QSPM analysis. We included only two alternatives in our example
just to keep it simple. It is important to note that strategies subject to
comparison should be mutually exclusive if possible.

I have questions about QSPM

You can ask your questions in our management discussion forum.

By the way, you might also be interested in reading about What is

balanced Scorecard and Porter's Five Forces model.
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