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Factor rating method of location

Dr. Ron Lembke. Factor rating method of location. Factor Rating Method. Most widely used method? Useful for service or industrial facilities: can include intangible, qualitative factors List relevant factors, assign a weight Develop a scale for each factor Score each factor using the scale

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Factor rating method of location

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  1. Dr. Ron Lembke Factor rating method of location

  2. Factor Rating Method • Most widely used method? • Useful for service or industrial facilities: can include intangible, qualitative factors • List relevant factors, assign a weight • Develop a scale for each factor • Score each factor using the scale • Multiply scores by weights, add up • Choose location with highest total score • Kind of like “Miss America” • Lots of work for each location, consider small list of candidates • Use Centroid to find an area, Factor Rating for town?

  3. Factor Rating Example • We need to decide where to build a new coffee roasting plant. There are two possible locations: Dallas, and Denver. • We consider the following factors • Transp: annual trucking costs in $k • Lease: annual costs in $k • Labor availability: scale 1-10, unemployment, related industries • Quality of life: scale 1-10: outdoor activities, cultural, sports, education

  4. Factor Rating Example • Using a scoring system we developed, we have the following. Factor Weight TX CO Transportation 0.4 900 1023 Plant Lease Cost 0.3 45 39 Labor availability 0.2 10 8 Quality of Life 0.1 7 9.5

  5. Normalizing Scores • All factors must be scored on the same scale, like 1-10, or 0-1.0, etc. • Costs need to be re-scaled • Lowest cost site gets a 10. • More expensive site gets • Plant Lease: 39/45 * 10 = 8.7 • Transportation: 900/1,023 * 10 = 8.8 • Multiply these raw scores by the weights for weighted scores

  6. Factor Rating Example TXCO Factor Wt Raw Wtd Raw Wtd Transp. 0.4 10 4.00 8.80 3.52 Plant 0.3 8.7 2.61 10 3.00 Labor 0.2 10 2.00 8 1.60 Q Life 0.1 7 0.70 9.5 0.95 TOTAL 9.31 9.07 TX is best, but not by a huge amount

  7. Summary • Factor Rating Method • Can include non-quantitative considerations • A weight for each category must be assigned • System for awarding points to each candidate has to be worked out • Sum the weighted scores in each category • Coming up with weights and scoring systems can be political

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