Relocation Vs Expansion

1. The Situation
Suppose that your company was faced with the decision of either relocating or expanding its premises due to shortage of space and other inconveniences within the current situation.

2. Scenario 1
Suppose further that the overriding objective driving this decision is the cost associated with it. After some research it is found that the cost estimates for relocation and expansion are:

Renovation therefore offers us a 50% saving. We might say that we prefer the expansion options twice as much as we do the relocation option or 2 to 1. Given such figures, it appears obvious that we should expand.

In general we can work out our preference by looking at the ‘gloat’ factor, that is, the amount we are not spending by making a certain option. The greater this sum is, the better we like the option. In our case the preferences, which are just relative gloat factors scaled down to a percentage, reveal a 66.6 % liking for renovation over 33.3% for relocation.

3. Scenario 2
Let us make things a little more challenging. Suppose now that the figures turned out as $20000 and $18000 respectively for the two options. Our preference now looks as follows:

Now the saving is only 10% and our preference could be expressed as having narrowed to 53% to 47%. There no longer seems to be a significant saving in renovation, given that these figures are merely estimates. This prompts us to examine other factors which may influence our judgment.

4: Scenario 3 – Other Issues
After some discussion with our fellow decision makers we might decide that in terms of quality of workspace, convenience and familiarity, there is a general preference to relocate rather than stay located where we are, all other things being equal or almost equal. Pressed to quantify this preference, our team might come up with a ratio of say 60% to 40%

It might also emerge during discussions that relocation could be achieved relatively quickly (the new place is ready to be used immediately) whereas expansion will require time, some inconvenience and possibly risk to equipment during the renovations. The preference according to this criterion is expressed as 2 to 1, or 66% to 33%.

We can summarise our findings so far as follows:

Rating the Selection Criteria
Having evaluated our options in terms of three criteria now, we must finally express a rating amongst the criteria themselves. In this way, we will be able to determine not only how we feel about each of the options relative to the criteria, but how we feel about the relative strength of the criteria themselves.

Suppose we ask each person on the panel to rate them and then we take an average value. Suppose further that the answers come out as follows:

Note that there are more scientific methods of achieving a rating.

5: The Results
A simple weighting calculation can now reveal the result of these deliberations. These are shown in the table below.

The weighted average calculation is performed by multiplying the preferences by the corresponding weighting for each option and adding the results. For example, since the 'Relocate' option scored 53%, 60% and 66.6% according to the Cost, Quality and Speed criteria respectively, each carrying weights of 40%, 30% and 30% respectively (we have written the weights as decimals rather than percentages as is the convention), the 'Relocation' final preferences is obtained by means of:

(53%)*0.4 + (60%) * 0.3 + (67%)*0.3 yielding 59%.

Similarly, for 'Renovation' we find

(47%)*0.4 + (40%) * 0.3 + (33%)*0.3 yielding 41%

It appears then that the 'Relocation' option appears to be the more attractive one when all of the criteria are considered.

Of course the result must be used intelligently and not simply trusted and followed. It should act merely as a 'second opinion', one that can challenge or confirm our intuitive feelings about the issue and perhaps force us to think more deeply and broadly about the decision.

6. Summary
The calculations are not the important part of this process. These can be done by means of a set of formulae in a spreadsheet or database. What is important is the rigourous and careful analysis of the options, criteria and preferences that the approach provides, yielding a transparent, consultative and documented process for arriving at a resolution to our deliberations - one that can withstand even penetrating scrutiny.