Dr Ron Lembke FACTOR RATING METHOD OF LOCATION

Dr. Ron Lembke FACTOR RATING METHOD OF LOCATION

Factor Rating Method n n n 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” n Lots of work for each location, consider small list of candidates ¨ Use Centroid to find an area, Factor Rating for town?

Factor Rating Example n n 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

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 n

Normalizing Scores All factors must be scored on the same scale, like 1 -10, or 0 -1. 0, etc. n Costs need to be re-scaled n ¨ Lowest cost site gets a 10. ¨ More expensive site gets Plant Lease: 39/45 * 10 = 8. 7 n Transportation: 900/1, 023 * 10 = 8. 8 n n Multiply these raw scores by the weights for weighted scores

Factor Rating Example Factor Wt Transp. 0. 4 Plant 0. 3 Labor 0. 2 Q Life 0. 1 TOTAL 9. 07 TX CO Raw Wtd 10 4. 00 8. 80 3. 52 8. 7 2. 61 10 3. 00 10 2. 00 8 1. 60 7 0. 70 9. 5 0. 95 9. 31

Summary n 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 n Coming up with weights and scoring systems can be political