EFE matrix: how to compute it and read the total
Build an External Factor Evaluation (EFE) matrix: weights that sum to 1.0, ratings from 1 to 4, and what the total weighted score tells you.
The External Factor Evaluation (EFE) matrix scores how well a firm responds to the opportunities and threats in its external environment. Give each external factor a weight from 0.0 to 1.0 so that the weights sum to 1.0, rate the firm's response from 1 to 4, multiply weight by rating, and add the results.
The total weighted score runs from 1.0 to 4.0, and 2.50 is the average. A total above 2.50 means the firm responds better than average to what its environment offers and threatens; below 2.50, worse than average.
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What the EFE matrix is for
The EFE matrix belongs to the input stage of the strategy-formulation framework. It takes the findings of your external audit and condenses them into one weighted, comparable number, so the opportunities and threats behind your strategy are explicit and checkable.
- It is fed by your external audit: industry, economic, social, political, technological and competitive findings.
- It feeds the matching and decision stages: its opportunities and threats become the O and T of your TOWS matrix.
- Its internal counterpart, the IFE matrix, uses the same arithmetic on strengths and weaknesses.
What you need before you start
You need a list of external factors that each trace to a source: a filing, an industry report, a news item with a date. They come from the external-audit chapter of your paper, not from memory. Each factor should be specific enough that someone could say whether it is true.
Decide the firm and the industry you are scoring before you open the grid. The weights describe the industry; the ratings describe your firm. Mixing the two is a common way to end up with a total you cannot defend.
Step 1: List the external factors
The first step in developing an EFE matrix is to list the key external factors from your external audit, opportunities first and then threats. Recent editions of David suggest 15 to 20 factors in all (some older editions say 10 to 20), so check the edition your program uses. State each factor as specifically as you can, with percentages or comparisons where you have them.
The sample below uses 6 factors (3 opportunities and 3 threats) to keep the example short. Use as many as your audit supports; the total always stays between 1.0 and 4.0 however many rows you have.
Step 2: Assign a weight to each factor
Give each factor a weight from 0.0 (not important) to 1.0 (very important), based on how much it can affect success in the industry. The weights must sum to 1.0, so a heavy weight on one factor takes weight from the others.
Sum of all weights = 1.0Example: 0.20 + 0.15 + 0.20 + 0.15 + 0.15 + 0.15 = 1.00
Weigh a factor by its importance to the industry, not by how your firm happens to be doing. Opportunities often get higher weights than threats, but a threat can carry a high weight when it is severe.
Step 3: Rate how well the firm responds
Rate each factor from 1 to 4 for how effectively the firm's current strategy responds to it. The scale has four whole-number steps, so use whole numbers only:
- 4: the response is superior.
- 3: the response is above average.
- 2: the response is average.
- 1: the response is poor.
The rating is about the firm's response, so it applies to threats and opportunities alike. A threat the firm handles well earns a 4, even though the threat itself is bad news.
“Why did you give a threat a rating of 4?”
The rating scores your response, not the threat. Point to the evidence in your paper that the firm already counters it, such as a contract, a pricing move or a cost buffer, and say which source shows it.
Step 4: Multiply, then add
Multiply each weight by its rating to get the factor's weighted score, then add the weighted scores for the total weighted score.
Weighted score = weight × ratingTotal weighted score = sum of all weighted scores
The total is always between 1.0 and 4.0. 2.50 is the average, and the total is only meaningful once the weights sum to 1.0.
Worked example: Tala Provisions (fictional)
Tala Provisions, Inc. is a fictional coffee roaster. These are the sample's factors with its two blank rows filled in. Fill in those two rows in the sample as shown here and you get the same total.
| Factor | Type | Weight | Rating (1–4) | Weighted score |
|---|---|---|---|---|
| F-001 Growing specialty-coffee demand among urban professionals | Opportunity | 0.20 | 3 | 0.60 |
| F-002 Rising import duties on green coffee beans | Threat | 0.15 | 2 | 0.30 |
| F-003 Growth in online and subscription ordering | Opportunity | 0.20 | 4 | 0.80 |
| F-004 Weaker peso raises input costs | Threat | 0.15 | 3 | 0.45 |
| F-005 Mall foot traffic recovering | Opportunity | 0.15 | 3 | 0.45 |
| F-006 New 3-in-1 competitor pricing | Threat | 0.15 | 2 | 0.30 |
| Total weighted score | 1.00 | 2.90 |
Take F-001, growing specialty-coffee demand among urban professionals. Its weight is 0.20 and the firm's response is rated 3 (above-average response).
Weighted score = weight × rating0.20 × 3 = 0.60
Adding the 6 weighted scores gives the total.
0.60 + 0.30 + 0.80 + 0.45 + 0.45 + 0.30 = 2.90
How to read the result
Tala's total of 2.90 sits above the 2.50 average, so on these factors the firm responds better than average to its environment. The largest single contribution is F-003 at 0.80: a heavy weight and a strong response.
A total is not a verdict on the firm, and it is not a forecast. It summarizes your own judgments, so another student with the same facts and different weights would get a different number. That is why each weight and rating needs a reason you can state.
Where sources disagree: some course templates and slide decks use other rating scales or loose weights. If your adviser prescribes a different version, follow it. Strama uses David's: weights from 0.0 to 1.0 that sum to 1.0, ratings from 1 to 4, and a total from 1.0 to 4.0 with 2.50 as the average.
Common mistakes
The weights do not sum to 1.0.
The total can fall outside 1.0 to 4.0, and either way it cannot be compared with the 2.50 average.
Fix: add up your weight column before you read the total, and adjust until it is exactly 1.0.
Rating the factor instead of the response.
Giving a threat a 1 because it is bad measures the threat, not the firm. The scale asks how well the firm deals with it.
Fix: for each row ask “how well does the current strategy respond?” and rate the answer.
Giving every factor the same weight.
Equal weights hide which factors matter, and the total just becomes an average of your ratings.
Fix: rank the factors by their effect on success in the industry first, then split the 1.0 along that ranking.
Using half points, such as a rating of 2.5.
The scale has four whole-number steps, so a half point is not a rating. It also claims precision your evidence does not have.
Fix: choose the nearest whole number, and write the reason in the paper.
Putting internal factors in the EFE.
A strong brand or a weak cash position comes from inside the firm, so it belongs in the IFE matrix.
Fix: keep only what comes from outside the firm: the industry, the economy, regulation, technology and competitors.
What your panel will ask
What is an EFE matrix, and what is the first step in building one?
It is a table that scores the firm's response to its opportunities and threats. The first step is listing the key external factors from your external audit. Show the audit page each factor comes from.
What should the weights sum to, and how did you decide them?
They sum to 1.0. For each weight, name the evidence that the factor matters in the industry, and be ready to say what would change if the weight moved.
What does your total of 2.90 mean?
The total runs from 1.0 to 4.0 and the average is 2.50, so 2.90 says the firm responds above average. Add what drives it: the rows with the largest weighted scores, and the source behind each.
Why is this factor an opportunity and not a threat?
Answer with the direction of the effect on the firm and the source that shows it. If a factor cuts both ways, say so, and explain why you split it or placed it where you did.
Where it goes next
The EFE feeds the matching stage. Its opportunities and threats are the O and T you cross with strengths and weaknesses in the TOWS matrix. Its total weighted score becomes the vertical axis of the IE matrix, and its factors reappear as key factors in the QSPM.
To see how your firm stacks up against rivals on the factors that decide the industry, build a competitive profile matrix.
Open the EFE matrix example and change one weight to see how the total moves.
Where this fits in your paper: the STRAMA paper format guide.
Sources
Method: Fred R. David's strategy-formulation framework, as set out in his Strategic Management: Concepts and Cases. Check the edition your program uses for page references.
Tala Provisions, Inc. and its sources are fictional. The figures are the sample EFE's, with its two blank rows filled in.
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Related guides
- IFE matrix
Build an Internal Factor Evaluation (IFE) matrix: list strengths then weaknesses, weight them to 1.0, rate 1 to 4, and read the total against 2.50.
- PESTEL analysis
PESTEL analysis (also written PESTLE): the six factors with Philippine examples, how findings become EFE opportunities and threats, and common mistakes.
- TOWS matrix
Build a TOWS matrix: pair strengths and weaknesses with opportunities and threats to write SO, WO, ST and WT strategies. Includes SWOT vs TOWS.