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EFAS (External Factors Analysis Summary)

EFAS (External Factors Analysis Summary) and IFAS (Internal Factors Analysis Summary) are two techniques aimed at evaluating the external and internal environment of the company, and the performance of the company in these environments (Hunger & Wheelen, 2007). Both of these instruments represent a table with appropriate factors (external or internal) listed in the first column. Other columns contain weights assigned to the factors (ranging from 0 to 1), with the sum of all weights equal to 1, and the rating of each factor, basing on the efficiency of the company’s response to the chosen factor (Hunger & Wheelen, 2007). EFAS model includes a set of opportunities and threats for the company, and IFAS model contains the list of the company’s strengths and weaknesses.

For each factor it is thus possible to calculate a weighted score (rating multiplied by weight) showing the contribution of this factor into the overall score of the company. Sum of all weighted scores represents the value showing how well the company is operating in its internal or external environment. This value will range from 1 to 5, with 3 being the average quality of response to the environment, and 5 meaning excellent efficiency (Hunger & Wheelen, 2007). EFAS and IFAS frameworks allow to estimate the company’s performance with regard to external or internal factors correspondingly compared to the other companies in the industry. These models also allow to prioritize between factors, and the weighted scores for each factor can be used to evaluate optimal strategic decisions for the company.

Although EFAS and IFAS models are effective quantitative instruments for decision-making, one should be aware of their limitations and weaknesses. The classification system used for these framework requires a significant simplification of business model, and requires to classify all environmental factors to four key categories (Coyle, 2004). However, in real life it is not always possible to determine unambiguously whether the factor has positive or negative effect. For example, strong corporate culture with local problems can be both the source of strengths and weaknesses for the company. In addition to this, the manager has to assign weights basing on own empirical experience since EFAS/IFAS framework does not have any recommendations for this (Coyle, 2004). As a result, the weighted score strongly depends on the attitude and vision of the person doing the evaluation. For the purpose of precision, it is possible to recommend to gather a diverse team of experts to obtain more realistic internal and external scores of the company.

 

References

Coyle, G. (2004). Practical strategy: structured tools and techniques. Pearson Education.
Hunger, J.D. & Wheelen, T.L. (2007). Essentials of strategic management. Pearson Prentice Hall.