In a recent blog (Weighing Risks), we wrote “we recommend that leadership develop and adopt a policy on the criteria and standards it will use in considering new investment decisions”. We then discussed the tool we use both for ourselves and our clients, the Priority Matrix.
There was quite a bit of interest from readers on more details regarding the priority matrix. So much so, we decided to write a couple posts focused solely on that tool. This first post briefly describes a priority matrix and how to create one. In our next post, we will focus on when, why and how to use it.
What is a Priority Matrix
As quoted above, the priority matrix is a tool that spells out the criteria and standards an organization can use to consistently evaluate new opportunities and their fit with the organization’s unique criteria and standards.
We all use a version of a priority matrix frequently. When you are choosing a restaurant for dinner, the criteria use might include type of food, location, wait time, noise in the restaurant and price of a meal. Likewise, some of those criteria may carry more weight than others, i.e., have a greater influence on the final choice.
An organization’s priority matrix works the same way. The board or leadership team determines the criteria that are critical to the organization when selecting a strategic initiative, growth opportunity or investment. Common criteria include level of risk, return on investment, alignment with vision, etc. When selecting criteria, we ask our clients to consider what they want their assets to do for them/the organization.
Standards are then developed for each criteria. The standards clarify the degree of alignment between a criterion and a strategic initiative, allowing you to assign a score of 1-5 for each criterion based on that degree of alignment. Continuing with our restaurant example, the standards you define for wait time might be a score of 1 if you are waiting over 2 hours, score of 2 for a wait from 1-2 hours, score of 3 for 30 minutes to an hour, 4 for 15 to 30 minutes and a 5 for less than 15 minutes. The higher the score, the better. We don’t typically get that specific when going out to eat, but the theory and the way that we think through the alternatives is very much the same.
The last piece of a priority matrix is a weighting scale for to the criteria. To determine weights, imagine you are given 100 points to divide up between your criteria. Simply assign more points to the criteria that “carry more weight”, i.e. are more important. Again, for the restaurant, you might assign weights as follows: type of food – 40 points, location – 10 points, wait time – 15 points, noise in the restaurant 15 points and price of a meal – 20 points.
Put it all together
Now a bit of math comes in as we put the components of the priority matrix together. Here are the steps in giving a priority score to an initiative or investment opportunity.
- Evaluate the degree of alignment between an opportunity and each criterion, using the standards you defined for the criterion. You should have a 1-5 score for each criterion when done.
- For each criterion, multiply the you gave the criterion by the weight you assigned it.
- Total all the weighted scores.
That total score indicates how closely a particular initiative or opportunity aligns with your priorities as an organization. The total points available is always 100 times the number of criterion you have chosen. Have leadership or the board determine how many points an opportunity should score in order to be considered.
Though valuable for assessing any new opportunity, the real beauty of a priority matrix comes into play when you are considering multiple opportunities or initiatives. Run each one through your priority matrix, then compare the scores to determine the initiatives that are the best match for your organization. More on this in our next post.
To view a sample priority matrix using our restaurant example, click here. If you would like help in developing a priority matrix for your organization, drop us an email and we will get you started on your way.