IFE (Internal factor evaluation) matrix is one of the best strategic tool for internal audit of the company. IFE is use for internal audit of functional area of business such as finance, marketing,IT, operations,accounts and others depend upon the nature of business and its size.
Before going into details there are some important terms in IFE matrix. I will explain each term one by one to make it easier for you when we further go into details.
The IFE matrix consists of following attributes mentioned below.
Internal factors are extracted after deep internal analysis of the company. Obviously every company have some weak point and strong point that’s the reasons internal factors are divided into two categories namely strengths and weakness.
Strengths are the strong areas or attribute of the company, which are used to overcome weakness and capitalize to take advantage of the external opportunities available in the industry.
Weakness are painful for the company means these are the weak factors which needs to be improve in future otherwise if they exposed to the competitors they can take the advantage of it.
How we can differentiate strength and weakness in IFE matrix?
If this question comes into mind then don’t worry its a good question and I will be the happy man to answer this one. The strength and weakness are organized in IFE matrix in different portion mean all strength are listed first under internal factors and then comes the internal weakness. In case if all the factors are listed altogether then the rating will help you out to identify internal strength and weakness.
Rating is common word I hope you are aware of it, in IFE rating is the way out to differentiate internal strengths and weakness. Internal weakness are further divided in two categories namely minor weakness and major weakness same goes of the strengths (minor strength and major strength)
There are some important point related to rating in IFE matrix.
Rating is applied to each factor.
Major weakness is represented by 1.0
Minor weakness is represented by 2.0
Minor strength represented by 3.0
Major Strength represented by 4.0
Major weakness need lot of company effort to change into minor weakness then strength and finally major strength.As compared to major strength minor weakness need little efforts of the company to change it into strength. The range of rating start from minimum 1.0 which is worst and maximum 4.0 which is the best factor of the company.
Weight attribute in IFE matrix indicates the relative importance of factor to being successful in the firm’s industry. The weight range from 0.0 means not important and 1.0 means important, sum of all assigned weight to factors must be equal to 1.0 otherwise the calculation would not be consider correct.
Weighted score value is the result achieved after multiplying each factor rating with the weight.
Total Weighted Score
The sum of all weighted score is equal to the total weighted score, final value of total weighted score should be between range 1.0 (low) to 4.0(high). The average weighted score for IFE matrix is 2.5 any company total weighted score fall below 2.5 consider as weak. The company total weighted score higher then 2.5 is consider as strong in position.
Steps to develop IFE Matrix
1. List key internal factors as identified in the internal audit process. Use a total of from ten to twenty internal factors, including both strengths and weaknesses. List strengths first and then weaknesses. Be as specific as possible, using percentages, ratios, and comparative numbers.
2. Assign a weight that ranges from 0.0 (not important) to 1.0 (all important) to each factor. The weight assigned to a given factor indicates the relative importance of the factor to being successful in the firm’s industry. Regardless of whether a key factor is an internal strength or weakness, factors considered to have the greatest effect on organizational performance should be assigned the highest weights. The sum of all weights must equal 1.0.
3. Assign a I to 4 rating to each factor to indicate whether that factor represents a major weakness (rating = 1), a minor weakness (rating = 2), a minor strength (rating = 3), or a major strength (rating = 4). Note that strengths must receive a 4 or 3 rating and weaknesses must receive a 1 or 2 rating. Ratings are thus company based, whereas the weights in Step 2 are industry based.
4. Multiply each factor’s weight by its rating to determine a weighted score for each variable.
5. Sum the weighted scores for each variable to determine the total weighted score for the organization.
What are the examples of Internal Factors?
There are few examples of internal factors of the company.
Strong marketing and promotion
Best product quality
Strong Financial condition
High Market Share
High value assets
High cost operations
Manufacturing cost is high
High employee turnover rate
Loss in joint venture
What is the difference between IFE and EFE?
External factor evaluation matrix consider external environment for evaluation by considering external opportunities and threats whereas IFE is the strategic tool to identify the internal factors for internal audit.
Examples of IFE Matrix
Here are some examples of IFE Matrix.
Amazon IFE Matrix
As you can see in this examples the total weighted score value is 2.80 which means company internal position is better.