External Factor Evaluation (EFE) Matrix: Analyzing Business Opportunities and Threats

Why Businesses Need the EFE Matrix

In a fast-changing world, businesses often face many outside challenges. If companies want to stay strong, they must look beyond their internal performance and understand what’s happening around them.

External Factor Evaluation (EFE) Matrix is a tool that helps organizations identify, organize, and evaluate external opportunities and threats in a clear and structured way.

Alongside the Internal Factor Evaluation Matrix, you get a full view of your situation: what’s happening outside and how ready your company is inside, the result can feed directly into SWOT Analysis.

When Should You Use It?

• During a strategic audit or internal analysis phase of strategic planning.
• When conducting a SWOT analysis:
  • Opportunities and Threats come from the EFE Matrix.
  • Strengths and Weaknesses come from the IFE Matrix.

Steps to Develop an EFE Matrix

Creating an EFE Matrix involves five main steps, each helping you move from raw data to clear insight.

Step 1: Identify Key External Factors

Start by identifying around 20 external factors that affect your business. These should include both opportunities and threats.

• Opportunities are trends or changes that could help the business grow.
• Threats are risks or challenges that may harm the business.

Tips:

• Typically split evenly (like 10 and 10) between opportunities and threats.
• Be specific and try to include numbers when possible. Please use the AQCD method to evaluate each factor and avoid using vague and unclear statements.

Practice

Download our assessment template.

Go to Templates to download the resource.