Internal Factor Evaluation (IFE) Matrix is important for conducting internal strategic management Audit. The strengths & weaknesses of the organization in its different functional areas are highlighted through the IFE matrix. Moreover the relationship between different strengths & weaknesses of functional areas of the organization are also identified & evaluated by IFE matrix. There is no perfect scientific approach for developing an IFE matrix so intuitive judgments are helpful in this regard. There are certain factors that are used in IFE matrix which are much more important to be understood than the actual numbers. The development process of IFE matrix is similar to External Factor Evaluation Matrix and is completed in the 5 steps.
How to Prepare Internal Factor Evaluation Matrix:
It is described earlier that the Internal Factor Evaluation (IFE) Matrix is developed in the five steps which are as follow.
01- All the key internal factors that are identified in the internal audit process are listed. Ten to twenty factors are included in the list that contains both the strengths and weaknesses of the organization. The strengths of the organization should be listed first & then the weaknesses. The ratios, comparative numbers & percentages usage make the IFE process more specific.
02- Certain weight is assigned to each factor that ranges from 0.0 (not important) to 1.0 (all important). The weight given to the factor is based on the success of that factor in the industry which means that such factor which is more successful in the industry has been given higher weight while that factor which is not much successful in the industry has been given lower weight. Moreover the factor that has more potential to effect the performance of the organization has been given higher weight irrelevant to the fact that the weighting factor may be internal strength or weakness. The sum total of all the assigned weights should be equal to one.
03- In this step of Internal Factor Evaluation (IFE) matrix, every factor has been given a rating that ranges from 1 to 4 which is based on the intensity of weakness or strength for the organization. If a factor has given rating 1, then it reflects major weakness for the organization. Similarly rating 2 reflects minor weakness. But when a factor is given rating 3 then it means that that factor is considered as minor strength for the organization. Similarly rating 4 is associated with the strong strength. There is final rule that the weakness must be given 1 or 2 ratings while strength is always be rated by 3 or 4. The weights assigned to the factors in the step 2 of the preparation of IFE matrix are industry based whereas the rating given to the factors are company based.
04- In the fourth step the weight of each factor is multiplied by its rating so that weighted score for every factor can be ascertained.
05- Finally in the last step, all the weighted scores of individual variables are added in order to find out the total weighted score for the organization.
There is no limit of the total number of factors that are included in the IFE matrix. But the total weighted score lay between 1.0 to 4.0, where 1.0 represents the weakness of the organization & 4.0 shows the strength of the organization. The total weighted score of 2.5 shows the average score. The total weighted score below 2.5 shows that the organizations are internally weak whereas the total weighted score above 2.5 represent that the organization has potential strengths. It is better that the there should be 10 to 20 factors included in the IFE matrix which is similar to the EFE Matrix. The smaller or larger number of factors does not affect the range of total weighted score because the sum of individual weights of all the factors is equal to 1.
The factor that serves both a weakness & strength for the organization should be included in the internal factor evaluation matrix twice and separate weight & rating should be assigned to each one. For example the Playboy logo benefits as well as harms the Playboy Enterprise. Many customers are attracted to playboy magazine from Playboy logo but on the other hand the Playboy cable channel is kept out from many markets through it.
Following table shows Internal Factor Evaluation (IFE) matrix for Circus Enterprise. The major strengths of the organization are property, size, long range planning & occupancy rates that are given the rating of 4. Locations & recent joint ventures are major weaknesses of the Circus Enterprise. The Circus Enterprise shows the total weighted score of 2.75 which shows that organization is above average in terms of its entire internal strengths.
The organizations that are multidivisional should prepare separate IFE matrix for its strategic business unit or autonomous division. Finally the overall corporate IFE matrix can be developed by integrating all the divisional matrices.