decision-matrix

Decision Matrix In A Nutshell

A decision matrix is a decision-making tool that evaluates and prioritizes a list of options.

Decision matrices are useful when:

  • A list of options must be trimmed to a single choice.
  • A decision must be made based on several criteria.
  • A list of criteria has been made manageable through the process of elimination.

Understanding a decision matrix

When a business finds itself unable to make a choice, a decision matrix allows it to identify the best way forward. 

To assist in this process, the matrix evaluates a set of options against a set of criteria to visually compare potential solutions. A value is assigned to each cell in the matrix by weighting each variable based on relative importance. This allows businesses to identify the factors that matter most and then mathematically identify the most appropriate decision.

The decision matrix can also be used in task prioritization and to support or defend business cases where a decision has already been made.

Creating a decision matrix in practice

Creating a decision matrix is a relatively simple process. Here is how a business can get started.

1 – Brainstorm the criteria

Come up with a list of appropriate criteria. To get a holistic interpretation, involve as many stakeholders as possible.

2 – Refine the list

Refine the criteria list according to factors that the relevant stakeholders deem important. If a consensus cannot be reached, consider using a method like multi-voting.

3 – Assign relative weights

To each criterion, assign a relative weight based on importance. Many businesses distribute 10 points among the criteria, with those deemed more significant attracting a higher share of the total points. 

For example, consider a budget airline wanting to expand into new cities by creating a list of destination airports. Using the decision matrix, the airline assigns 6 points to airport taxes, 3 points to pre-existing competition, and 1 point to the average terminal wait time.

4 – Create the matrix

Create the matrix such that the decision alternatives occupy rows, and factors affecting the decision occupy columns.

In the case of the airline company, the decision alternatives are the airports it has identified for possible expansion.

5 – Evaluate each decision against the criteria

To measure the value of each decision alternative/factor combination, establish a rating scale

One popular option is to use a 1, 2, 3 scale where 1 = low, 2 = medium, and 3 = high.

Regardless of the scale chosen, it must be consistent across all cells in the matrix. This can be done by wording the criteria in such a way that a higher rating is more beneficial to the business. Rating scales can also be established where a higher rating is more detrimental to the business

The latter would be ideal for the budget airline company, using lower values to denote airports that would be more suited to their low-cost business model.

6 – Multiply each option’s rating by the weight

Lastly, multiply each option by the predetermined weight and then add the points together for each. 

For example, airport A may have high taxes, low competition, and medium average terminal wait time. In the decision matrix, this would result in a total score of 23 which could then be compared to the total score of other airports.

Depending on how the matrix is created, the option scoring highest may not necessarily represent the wisest decision. But it does provide valuable guidance for analysis teams on where to focus their efforts, encouraging meaningful discussion and stimulating new perspectives or solutions.

Key takeaways

  • A decision matrix allows businesses to make complex decisions by considering a range of weighted criteria.
  • Decision matrices help prioritize decision making or support decisions that have already been made. They are also useful when a business needs to make sense of large amounts of conflicting, complex, or unrelated information.
  • A decision matrix can be created in six relatively simple steps, allowing decision-makers to create matrices with customizable inputs specific to company goals or objectives.

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decision-matrix
A decision matrix is a decision-making tool that evaluates and prioritizes a list of options. Decision matrices are useful when: A list of options must be trimmed to a single choice. A decision must be made based on several criteria. A list of criteria has been made manageable through the process of elimination.
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ge-mckinsey-matrix
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Published by

Gennaro Cuofano

Gennaro is the creator of FourWeekMBA which reached over a million business students, executives, and aspiring entrepreneurs in 2020 alone | He is also Head of Business Development for a high-tech startup, which he helped grow at double-digit rate | Gennaro earned an International MBA with emphasis on Corporate Finance and Business Strategy | Visit The FourWeekMBA BizSchool | Or Get The FourWeekMBA Flagship Book "100+ Business Models"