Factor-rating systems
Methods of placement of industrial enterprises
Assessment of alternative regions, subregions and individual settlements = отдельных населенных пунктов ise usually called macro-analysis.
Evaluation of specific areas in the already selected place is called microanalysis.
Macro-analysis is performed using the factor rating system, the method of linear programming and the method of center of gravity. Each of these methods should be used together with a detailed cost-benefit analysis, and, of course, they all must be linked with business strategy.
Factor-rating systems, obviously, are the most widely used general method for selecting the location, since they provide a mechanism to integrate the various factors in an easily accessible manner. Suppose, for example, for the refinery = нефтеперегонного завода, the following scale of ratings (in points) of the main factors influencing the choice of location.
Every possible location should be assessed using the appropriate scale of factors, and then their sum is found. After comparing the amounts received for each site - участок on the largest sum of points place for production is selected.
The main problem using simple factor of rating systems is that they do not take into account a wide range of costs that may occur within each factor. For example, between the best and the worst location for one factor may be the only difference is 500 dollars, but in another way - a few thousand dollars. The first factor may gain the greatest number of points, but be of little importance to make a decision on placement, the second may have a small scale, but allows you to set the real value of the placement.
Problem 1:
A company is planning on expanding and building a new plant in one of three countries in middle or Eastern Europe. The general manager, Patricia Donegal, has decided to base her decision on six critical success factors: technology availability and support, availability and quality of public education, legal and regulatory aspects,
social and cultural aspects, economic factors, and political stability.
Using a rating system of 1 (least desirable) to 5 (most desirable) she has arrived at the following ratings (you may disagree with these ratings!). In which country should the plant be built?
| Critical Success Factor | Turkey | Serbia | Slovakia |
| Technology availability and support | 4 | 3 | 3 |
| Availability and quality of public education | 4 | 4 | 3 |
| Legal and regulatory aspects | 2 | 4 | 4 |
| Social and cultural aspects | 5 | 3 | 4 |
| Economic factors | 4 | 3 | 3 |
| Political stability | 4 | 2 | 3 |
S = 23 19 22
Based upon her ratings of the critical success factors, Patricia should choose Turkey.
To solve this problem the possible values of each factor is proposed to determine, using the method of weighted scale based on the ranges of cost variations rather than simply the sum of total costs. This method can take into account the difference in cost for each factor.
Problem 2:
Assume that Patricia decides to use the following weights for the critical success factors:
Technology availability and support 0.3
Availability and quality of public education 0.2
Legal and regulatory aspects 0.1
Social and cultural aspects 0.1
Economic factors 0.1
Political stability. 0.2
Would this change her decision?
Answers:
From a practical perspective, given the small difference between the scores for Turkey and Slovakia, and the subjectivity of the ratings themselves, Patricia would be better advised to develop additional critical success factors, more carefully weigh the individual factors; or, in general, to acquire more information before making her decisions.
Problem 2:
| Critical Success Factor | Wgt | Turkey | Serbia | Slovakia | |||
| Technology availability and support | 0.3 | 4 | 1.2 | 3 | 0.9 | 4 | 1.2 |
| Availability and quality of public education | 0.2 | 4 | 0.8 | 4 | 0.8 | 3 | 0.6 |
| Legal and regulatory aspects | 0.1 | 2 | 0.2 | 4 | 0.4 | 5 | 1.0 |
| Social and cultural aspects | 0.1 | 5 | 0.5 | 3 | 0.3 | 4 | 0.4 |
| Economic factors | 0.1 | 4 | 0.4 | 3 | 0.3 | 3 | 0.3 |
| Political stability | 0.2 | 4 | 0.8 | 2 | 0.4 | 3 | 0.6 |
S = 3.9 3.1 4.1
In this case, use of the weighting factors changes the recommendation to Slovakia. One might again suggest that additional information be considered in making the decision.