Today, I’m going to explain how to look for hidden opportunities and risks in your organization using a weighted SWOT analysis. This strategic management tool allows you to calculate your options, which leads to decisions that are risk intelligent.

In Part 1: How Do I Make a SWOT Diagram? I explained how to take the Strengths (ways you’re already reaching your strategic objectives), Weaknesses (ways you are not achieving those objectives), Opportunities (potential ways to grow effectively), and Threats (hidden problems, waste, loss, and other things that might keep you from growing your business).

In Part 2: How Do I Make a Super SWOT Diagram? I described how to match your Strengths with Opportunities and Threats. This allows you to see insights that weren’t obvious before. You can also use it to uncover potential biases and blind spots. This helps you to overcome barriers as a leader and to see your company as your customers and employees see it.

In this final stage (Part 3: How Do I Make a Weighted SWOT Diagram?) we’re going further by weighing each of your Strengths, Weaknesses, Opportunities, and Threats using two metrics, and comparing the total scores.

Watch the video, or read more below:

Why Use a Weighted Score?

In risk management, we look at Impact (the severity if something occurs), and Probability (the likelihood that something will actually happen).

Here’s a severity matrix you can use to evaluate your company’s strategic risk:

We can do the same thing in a SWOT diagram by calculating each of the Strengths, Weaknesses, Opportunities, and Threats in two ways:

• Impact: The possible result or outcome, and
• Probability: The chance that the outcome will actually happen

When you multiply these two numbers together, the total can help you decide where to spend your time and resources. Which one is worth evaluating more closely? Where should we start first? How should we make plans for the future?

Since we can’t do everything at once, this tool can be extremely useful in sifting out the most critical components from those that aren’t essential.

Step 1: Score Your Impact and Probability

After sketching out the basic components (Strengths, Weaknesses, Opportunities, and Threats), the first step is to determine the Impact (or effect) that each element could have on your organization. Not all SWOT elements are going to have the same kind of impact.

1: Determine Impact

To determine impact, we’re assigning a number based on the amount of effect (either positive or negative) that could occur. A higher number indicates a stronger degree of change.

Here are the impact ratings in our ABC Health Practice example:

Strengths

• S1: Strong client relationships (ability to create strong connections with people; loyal customers)
  • Impact rating is 0.1
• S2: New services growth (offering unique services that competitors don’t provide)
  • Impact rating is 0.1
• S3: Unique qualifications (practitioner has extensive training and is sought after)
  • Impact rating is 0.15
• S4: Low-priced services (I don’t recommend this, but the cost of services is lower than average)
  • Impact rating is 0.05

The Strengths totals are (0.1 + 0.1 + 0.15 + 0.05), adding up to 0.4.

Weaknesses

Weaknesses include:

• W1: Inefficient processes (lots of wasted time and effort internally; frustrating and confusing)
  • Impact rating is 0.15
• W2: Slow A/R (large Accounts Receivable in 90 & 120-day buckets; not charging upfront, insurance denials, not chasing up billing; bad cashflow)
  • Impact rating is 0.3
• W3: Unclear value proposition (“What do we do?” “Why do customers come to us?” It’s not just because you’re nice and fun to be around. What’s the real reason? Consider asking how customers find you, and why they want your help.)
  • Impact rating is 0.1
• W4: Negative online ratings (1- or 2- star reviews are disappointing, especially when they’re from an anonymous source; it can be shocking and embarrassing)
  • Impact rating is 0.05

The Weakness totals are (0.15 + 0.3 + 0.1 + 0.05), adding up to 0.6.

When we add up the Impact scores for Strengths and Weaknesses (0.4 + 0.6), the total equals 1.0.

Opportunities

Here are the Opportunities for ABC Health Practice:

• O1: Increasing interest (more people are emailing, calling, visiting the website, finding them on social media)
  • Impact rating is 0.05
• O2: Virtual visits/telehealth (they started providing consultations across state lines; if you feel comfortable communicating with clients virtually, this could be a great potential area of growth; even for hands-on services, you can still provide high-value consults)
  • Impact rating is 0.05
• O3: Podcast & article request (a few of my clients have been asked to join a regular podcast or radio show; great chance to promote what they do and solve problems; writing articles and other content puts you top-of-mind as an expert and resource)
  • Impact rating is 0.1
• O4: Niche market (Niching narrows your focus, allows people to find you more easily, doesn’t get distracting, and you can make more money because ideal customers will seek your help rather than going to the dozens of other “everything to everyone” practitioners).
  • Impact rating is 0.2

The Opportunities totals are (0.05 + 0.05 + 0.1 + 0.02), adding up to 0.4.

Threats

The Threats include:

• T1: Negative news reports (shocking and negative news stories that disparage your industry)
  • Impact rating is 0.05
• T2: Lower profits (from a decrease in customers’ disposable income, fewer sales, or higher expenses)
  • Impact rating is 0.3
• T3: Debt load (a high level of credit card, bank, or other debt)
  • Impact rating is 0.2
• T4: Outdated technology (using old hardware or software, losing potential customers due to an inability to connect via apps and other tech methods)
  • Impact rating is 0.05

The Threats totals are (0.05 + 0.3 + 0.2 + 0.05), adding up to 0.6.

Next, we add up the Impact scores for Opportunities and Threats (0.4 + 0.6). The total equals 1.0.

Note that the Strengths + Weaknesses row should add up to 1.0. The Opportunities plus Threats row should also equal 1.0. (If you’d rather use 100 as the total, you can do that instead of decimals).

2: Determine Probability

Next, you determine the probability, or likelihood, of each of your SWOT components. How likely is it that each of these things will happen?

To do this, use a scale of 1, 2, or 3. A “1” rating means you believe that element is highly unlikely to happen. So it won’t be as important to your decision-making process.

A “3” rating means you are absolutely sure it will continue to occur. In the above example, items with a rating of “3” include:

• S1: Strong client relationships (Strength)
• W1: Inefficient processes (Weakness)
• W2: Slow A/R (Weakness)
• O4: Niche market (Opportunity)
• T2: Lower profits (Threat)

All of these elements are very likely to continue affecting this business.

3: Calculate the Totals

Next, we calculate the total by multiplying the Impact times Probability. We then arrive at a Total Score for each element in the SWOT. You’ll see that the number reflects a combination of the potential outcome and the chance it will occur.

Some elements might have a high Impact score but a low Probability. Other elements with a lower impact score, but a “3” Probability rating, will actually end up with a more significant final score.

For ABC Health Service, the highest scores include:

• S1: Strong client relationships (Strength), with a total score of 0.3
• S3: Unique qualifications (Strength), with a total score of 0.3
• W2: Slow A/R (Weakness), with a total score of 0.9
• W3: Unclear value proposition (Weakness), with a total score of 0.4
• O4: Niche market (Opportunity), with a total score of 0.6
• T2: Lower profits (Threat), with a total score of 0.9
• T3: Debt load (Threat), with a total score of 0.4

Step 2: Re-Order the List

The next step is to mark which elements have the highest scores. I find it useful to re-order your elements (see the example below).

You can also list the elements in order of total score, like this:

• W2: Slow A/R (Weakness), with a total score of 0.9
• T2: Lower profits (Threat), with a total score of 0.9
• O4: Niche market (Opportunity), with a total score of 0.6
• W3: Unclear value proposition (Weakness), with a total score of 0.4
• T3: Debt load (Threat), with a total score of 0.4
• S1: Strong client relationships (Strength), with a total score of 0.3
• S3: Unique qualifications (Strength), with a total score of 0.3

Step 3: Apply the Insights for Decision-Making

What does this all mean?

Now that you’ve calculated the impact and likelihood for each of your SWOT elements, the total score shows us what to focus on first in making risk intelligent decisions.

Based on the analysis we’ve just done, here is what I would suggest for this practice:

Insights from Strengths

Observations

• Client relationships are very important. This practitioner has a gift for building strong bonds with their customers.
• This practitioner has specialized training that could attract a very specific type of Ideal Customer.

 Recommendations for Strengths

• Isolate the referral sources that bring in current Ideal Customers, and expand those avenues.
• Determine whether the company’s niche is clear to Ideal Customers.

Read more: What Happened When I Became an “Employee For a Day”

Insights from Weaknesses

Observations

• Extremely high A/R buckets causing a cashflow crisis and significant revenue loss from write-offs.
• This owner is not sure exactly what value customers are receiving, or why they are asking for services.

Recommendations for Weaknesses

• Drill down to root causes for late A/R collections: Is it delayed billing, insurance denials, insurance types, or lack of consistency? (Review my 3-part series on Transaction Avoidance Syndrome)
• Review the VMVOM (Vision, Mission, Values, Objectives, and Measures) and compare it with Ideal Customers’ true reason for purchasing services.

 Read more: What is Strategic Risk, and Why Does It Matter?

Insights from Opportunities

Observations

• There is a wide-open niche market to meet the needs of a specific type of Ideal Customer.

Recommendations for Opportunities

• Evaluate your current customers. Ask yourself:
  • Do they arrive on time?
  • are they upfront about her/his symptoms and concerns?
  • Do they respect your policies and procedures?
  • Do they pay you (customers) or achieve goals (staff) without complaint?
  • Do they respond well to services or treatment?
  • Are they a pleasure to serve?
  • Do they agree with your philosophy and beliefs?
• Are you serving a broad market, or a niche one? The benefits are many:
  • People remember you
  • You get to choose who you serve
  • You attract the best clients
  • You stand out in the marketplace
  • You are seen as an expert
  • “What you do” becomes magnetic
  • You get more high-value referrals
  • People immediately realize they need your services.
  • You can eliminate “80/20 Customers”
  • Your website is SEO friendly

Read more: 11 Compelling Reasons to Niche Your Healthcare Practice

Insights from Threats

Observations

• Lower profits is caused by two things:
  • less disposable income from Ideal Customers, and
  • leaks at several points in the sales cycle
• Companies with a high debt load are higher risk of future problems.

Recommendations for Threats

• Determine whether you have Transaction Avoidance Syndrome.
• Identify the root causes of your profit leaks.
• Consider innovative ways to generate profit
• Create a plan for paying off debt as quickly as possible.

Read more: What is Transaction Avoidance Syndrome?

Step 4: Match the Components

The next step is to cross-reference each of the four squares together:

• Strengths with Opportunities
• Strengths with Threats
• Weaknesses with Opportunities
• Weaknesses with Threats

Matching each of these uncovers additional layers of potential solutions, as well as additional areas to analyze and review.

Let’s review examples of these matched components.

Strengths and Threats

S4: Low-priced services combined with T3: Debt load

• Right away, we can see this is a major problem. A company can’t make more money if they’re charging low prices but not generating more transactions (or visits). There are only so many hours in the day.
• The debt load will continue to rise, which could add to your stress level. This could, in turn, affect how people feel about you and your business.

Strengths and Opportunities

S3: Unique qualifications combined with O3: Podcast & article request

• What a great combo. If you have an unusual background, with experience and knowledge in a certain area, consider drilling down to a customer need that is particularly interested in your niche expertise.
• Share high-value content through a podcast, blog articles, and other methods to connect with potential buyers in a way that your peers cannot.

 S1: Strong client relationships and O2: Virtual visits/telehealth

• If you have a knack for creating strong connections with people and you’re not afraid to try something new, consider working with customers outside of your geographic area. By doing this, you apply one of your strengths with a new opportunity.

Weaknesses and Threats

Next, let’s look at Weaknesses and Threats.

W4: Negative online ratings combined with T3: Debt load

• The low-star reviews and negative response could be coming from people who are feeling an overly aggressive, frenetic energy.
• If you’re trying to talk people into buying your service because of a concern about cashflow, they might feel that energy and rate you poorly.

Read more: Yin and Yang Approaches to Management

Unhappy customers don’t always share negative feedback to your face. This is why I encourage every leader to accept (and even welcome) bad news: anything that is unpleasant to hear.

This includes:

• Reviews
• First-hand experiences
• Devil’s Advocates
• Verbal and written feedback

If you are unwilling to hearing negative experiences, there’s a much higher chance that your company will receive negative ratings. Conversely, if welcome negative feedback (even if it’s painful to hear), this will create a culture of openness and honesty, which will lead to more engaged customers and staff.

When someone with a legitimate complaint is provided several options to communicate their problems directly, and they are satisfied the issue will be heard and satisfactorily resolved, they will not feel the need to leave a 1-star review with nasty comments.

Consider the 5 steps in the Healthy Feedback Loop:

1. Empathetic Leaders
2. Non-Retaliatory Culture
3. Structured Feedback Mechanism
4. Analytic Framework
5. Visible Follow-Through

Weaknesses and Opportunities

Finally, let’s look at what happens when we match a Weakness with an Opportunity:

W1: Inefficient processes and O4: Niche market

• If your internal workflow has some leaks, and you’re attempting to provide services with very specific value to a or a particular group of target customers, you might be able to determine the root causes of the inefficiency.
• You will suddenly be able to isolate the few things that will provide the most value to your customers. We call this the 80/20 Rule.

 

Final Thoughts

In this post, we have discussed the reasons to use a weighted SWOT:

• to calculate probability and impact,
• to measure risk, and
• to isolate critical areas of focus.

We’ve also reviewed the 4 steps to creating it:

• Determine the Impact and Probability Scores
• Re-Order the List
• Apply the Insights for Decision-Making
• Match the Components

I hope you’ve learned something new from this tutorial on SWOT diagrams. If you’ve enjoyed it, leave a comment below or contact me directly.

 

Are you are a business owner who feels frustrated about planning for the future? Let’s talk. Find out more here.

 

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Grace LaConte is a business consultant, writer, workplace equity strategist, and the founder of LaConte Consulting. Her risk management tools are used around the globe, and she has successfully reversed toxic work environments for clients in the healthcare and non-profit fields. Grace specializes in lactation law compliance & policy development, reducing staff turnover after maternity leave, and creating a participatory work culture.

Find more at laconteconsulting.com, or connect with her on Instagram and Twitter @lacontestrategy.