Applying a Strategic Prioritization System

Posted by on November 21, 2011

In strategic planning, we must learn to separate wants from needs and correctly prioritize them for our business.  We are forced to make tough decisions that open one door and close another.  Weighty strategic decisions can be made easier if we apply a decision “triage” to help structure the cognitive process we must complete. In our previous post, "Inputs Into A Strategic Prioritization Process", the inputs for a basic strategic prioritization process were covered and the core variables were defined. In this post, a formula for strategic prioritization is shared along with a detailed example to demonstrate its use.

A Prioritization Formula

Now that we have some variables to work with, we’ll need a formula to use in calculating a score for each decision alternative we want to consider.

The following formula yields a final score that can be used to sort alternatives from highest or lowest (or vice versa):

       Relative Importance to the Organization

minus      (Relative Satisfaction with the Existing State)

minus      (Approximate Time in Relative Scale to Implement or Complete)

minus      (Approximate Expense In Relative Scale)

plus         (Relative Viability (taking into account short & long-term usefulness)) 

Equals     Final Score

The resulting scores, when calculated on a spreadsheet, yield a sortable table that becomes a prioritized list of wants and needs.  While this data may not be enough to fully base decisions upon, it serves as a rational analysis of available options and the process itself is a huge improvement over decisions made on emotionally-based reactions.

An Example

As an example to illustrate this decision-making process, what if we were a small start-up business selling a consumer product that was a combination floor polish / dessert topping?

Let’s define a few fictitious but pertinent background details to round-out the example. 

The situation:

We have determined through some preliminary research that such a product will sell relatively well over the Internet (okay, just bear with us for the sake of an example).  Our analysis also suggests that we’d need approximately 2,000 units of our product in inventory to begin operations.  Our manufacturer requires a minimum order of 5,000 units unless we pay a 10% penalty fee, but provides a substantial 20% price break if we order in quantities over 10,000 units.  The product appears to have a shelf-life of over 20 years, so there is no danger of the stuff going bad.

There are store-front locations available to lease, but require a minimum three-year term and first and last month’s rent paid in advance.  We’re not sure if that is the better option, or if we should look at using the Internet as our primary channel initially.  Our research has determined that this niche does well as a specialty store model, but the monthly lease would be $2,500 and that might exceed our ability to pay in the early months until the business is better established.  Our capital is limited to $100,000 and our target to launch our business is 12 weeks from now.  We talked to an advertising agency and were quoted $15,000 for a package that would give us a combination of print advertising in the local paper and several radio spots a day.  Alternatively, we could buy print-only advertising for $6,500 or radio-only ads for $8,000.  We would have to pay an additional $3,000 for logo design and ad layout and copy development if we want help on that aspect.  A local web-marketing company offers out-of-the-box B-2-C websites for $5,000 that can be ready in a week’s time, but the design is very generic.  Alternatively, they offer a custom-built site for $25,000, but this requires approximately 90 days to complete.

To summarize, here are the major decisions to be made:

• Sell through the Internet only
• Sell through a store-front only
• Use Internet and Store-front
• Order the 2,000 units of product estimated as our initial need
• Order > 5,000 units of product to avoid the penalty
• Order > 10,000 units of product get the price break
• Pay for logo and ad development
• Buy the full advertising package
• Buy no advertising
• Buy the print-only advertising package
• Buy the radio-only advertising package
• If the Internet is selected as a channel, build your own website
• If the Internet is selected as a channel, have someone custom build your website
• If the Internet is selected as a channel, buy a generic out-of-the-box pre-designed website
• Buy a professionally designed logo
• Use a self-designed logo

Of course in a real-life situation, there would be millions of other decisions to be made,  but let’s keep this simple for the sake of this example.Below is the table of results, based on scoring each alternative with a relative score and using the following as the scoring index:

1 - No discernible value
2 - Low
3 - Medium
4 - High
5 - A value that is beyond “high” or “off-the-chart”

As you can see in the table below, some scores come out as negative numbers, but that is okay.  The relative ranking is what we are looking for.  In some cases, judgement must be used on deciding the score.  For example, the “Expense” of not buying any advertising is a ‘4’, the same as the value for “Expense” if we bought the full advertising package.  The reason why is the trade off on the cost of personal time to sell and attract business is high if there is no advertising used to drive traffic to a store or website.

With the raw data now captured, the next step is to sort the table, based on ascending order of the “Score” column.  The table below shows that result, with the shaded portion representing the choices eliminated and the top scored items indicating the optimal choices.  In some cases, the negative score might still represent good options to consider, but for simplicity sake - only the positive scores were selected as top-priority options in this example.

We’re still not quite done though.  Remember the “Dependency” column?  We need to account for those in our final score tabulation.  For the sake of demonstrating a stepwise example, the calculations of the dependencies are shown below to explain the calculation:

Item 14 Adjusted Score = (Item 14 Score + Item 1 Score + Item 3 Score) or (2 + 1 -2) = 1
Item 7 Adjusted Score = (1 + (-3)) = -2
Item 13 Adjusted Score = (1 + (+1) + (-2) = 0
Item 12 Adjusted Score = ((-2) + 1 + (-2) = -3

If we resort the table once more on the adjusted scores, the final table yields our final “best choices”.

Here’s the final table:

Selecting the top four options, are initial choices would be to do the following:

• Order > 5,000 units of product to avoid the penalty
• Buy a professionally designed logo
• Sell initially through the Internet only
• Buy a generic out-of-the-box pre-designed website

Of course this is a greatly simplified example of applying such a decision process, but it effectively demonstrates the power of critical analysis tools in strategic planning.

Benefits

Prioritization is a fundamental component of the cognitive decision-making process.  It is essential to have such tools to draw upon in strategic planning or to have at our disposal for making routine business decisions.  Ranking wants versus needs is important to planning so that we eliminate extraneous factors in our decision process and make choices that are right for our business.  The applicability of such tools is far broader than just the executive team.  Organizations should bring in people from outside the executive circle for fresh ideas and different perspectives.

Most importantly, the point of decision tools is not the model itself and certainly not to add bureaucracy or undue process.  The importance is in having a framework to leverage throughout the organization.

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For permission to use or reprint any portions of this copyrighted article, contact Method Frameworks at articles@methodframeworks.com.

About the Author:

Joe Evans is the President and CEO of Method Frameworks.  Joe is a published author, frequent speaker and recognized expert in corporate strategic planning. To contact Method Frameworks about scheduling Mr. Evans about an upcoming speaking engagement, visit www.methodframeworks.com/business-speaker or email requests to media_relations@methodframeworks.com.

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