31.

Decision Matrix

Example
A caterer needs to find a new supplier for his basic ingredients. He has four options.

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Factors that he wants to consider are:

 Cost.
 Quality.
 Location.
 Reliability.
 Payment options.
Firstly he draws up the table shown in figure 1, and scores each option by how well it
satisfies each factor:
Figure 1: Example Decision Matrix Analysis Showing Unweighted
Assessment of How Each Supplier Satisfies Each Factor

C
Payment
Factors: o Quality Location Reliability Total
Options
st

Weights:            

Supplier 1 1 0 0 1 3  

Supplier 2 0 3 2 2 1  

Supplier 3 2 2 1 3 0  

Supplier 4 2 3 3 3 0  
Next he decides the relative weights for each of the factors. He multiplies these by the
scores already entered, and totals them. This is shown in figure 2:

Figure 2: Example Decision Matrix Analysis Showing Weighted Assessment

of How Each Supplier Satisfies Each Factor

Reliabilit Payment
Factors: Cost Quality Location Total
y Options

Weights: 4 5 1 2 3  

Supplier 1 4 0 0 2 9 15

Supplier 2 0 15 2 4 3 24

Supplier 3 8 10 1 6 0 25

Supplier 4 8 15 3 6 0 32
This makes it clear to the caterer that Supplier 4 is the best option, despite the lack of
flexibility of its payment options.

Key Points
Decision Matrix Analysis helps you to decide between several options, where you need
to take many different factors into account.

To use the tool, lay out your options as rows on a table. Set up the columns to show the
factors you need to consider. Score each choice for each factor using numbers from 0
(poor) to 5 (very good), and then allocate weights to show the importance of each of
these factors.

Multiply each score by the weight of the factor, to show its contribution to the overall
selection. Finally add up the total scores for each option. The highest scoring option will
be the best option.

How to Use the Tool

Decision Matrix Analysis works by getting you to list your options as rows on a table, and the
factors you need consider as columns. You then score each option/factor combination,
weight this score by the relative importance of the factor, and add these scores up to give an
overall score for each option.

While this sounds complex, this technique is actually quite easy to use. Here's a step-by-
step guide with an example. Start by downloading our free worksheet. Then work through
these steps.

Step 1
List all of your options as the row labels on the table, and list the factors that you need to
consider as the column headings. For example, if you were buying a new laptop, factors to
consider might be cost, dimensions, and hard disk size.

Step 2
Next, work your way down the columns of your table, scoring each option for each of the
factors in your decision. Score each option from 0 (poor) to 5 (very good). Note that you do
not have to have a different score for each option – if none of them are good for a particular
factor in your decision, then all options should score 0.
Step 3
The next step is to work out the relative importance of the factors in your decision. Show
these as numbers from, say, 0 to 5, where 0 means that the factor is absolutely unimportant
in the final decision, and 5 means that it is very important. (It's perfectly acceptable to have
factors with the same importance.)

Tip:
These values may be obvious. If they are not, then use a technique such as Paired
Comparison Analysis  to estimate them.

Step 4
Now multiply each of your scores from step 2 by the values for relative importance of the
factor that you calculated in step 3. This will give you weighted scores for each option/factor
combination.

Step 5
Finally, add up these weighted scores for each of your options. The option that scores the
highest wins!

Tip:
If your intuition tells you that the top scoring option isn’t the best one, then reflect on the
scores and weightings that you’ve applied. This may be a sign that certain factors are
more important to you than you initially thought.

T-Charts are a type of chart, a graphic organizer in which a student lists and

examines two facets of a topic, like the pros and cons associated with it, its
advantages and disadvantages, facts vs. opinions, etc.
For example, a student can use a T-chart to help graphically organize
thoughts about:
  Making a decision by comparing resulting advantages and
disadvantages (like getting a pet or taking a new job),
 Evaluating the pros and cons of a topic (for example, adopting a new
invention),
 Enumerating the problems and solutions associated with an action (for
example, analyzing the plot of a book or a topic like poor nutrition),
 Listing facts vs. opinions of a theme (great to use after reading a
selection of text or a news article),
 Explaining the strengths and weaknesses of a piece of writing (useful
after reading a piece of persuasive or expository writing),
 Listing any two characteristics of a topic (like the main ideas for a
given topic and a salient detail for each idea).

Decision Tree Analysis

October 4, 2019 By Priya C Leave a Comment

Definition: Decision tree analysis is a powerful decision-making tool which initiates a

structured nonparametric approach for problem-solving. It facilitates the evaluation and
comparison of the various options and their results, as shown in a decision tree. It helps to
choose the most competitive alternative.

It is a widely used technique for taking crucial decisions like project selection, cost management,
operations management, production method, and to deal with various other strategic issues in
an organization.

Content: Decision Tree Analysis

1. What is a Decision Tree?

2. Terminologies Used
3. Steps
4. Example
5. Advantages
6. Disadvantages
7. Conclusion
What is a Decision Tree?
A decision tree is the graphical depiction of all the possibilities or outcomes to solve a specific
issue or avail a potential opportunity. It is a useful financial tool which visually facilitates the
classification of all the probable results in a given situation.

Terminologies Used

Let us understand some of the relevant concepts and terms used in the decision tree:

 Root Node: A root node compiles the whole sample, it is then divided into multiple sets
which comprise of homogeneous variables.
 Decision Node: That sub-node which diverges into further possibilities, can be denoted
as a decision node.
 Terminal Node: The final node showing the outcome which cannot be categorized any
further, is termed as a value or terminal node.
 Branch: A branch denotes the various alternatives available with the decision tree maker.
 Splitting: The division of the available option (depicted by a node or sub-node) into
multiple sub-nodes is termed as splitting.
 Pruning: It is just the reverse of splitting, where the decision tree maker can eliminate
one or more sub-nodes from a particular decision node.

Steps in Decision Tree Analysis

Now, you must be wondering, how to initiate the decision tree analysis for solving a particular
issue?
Following steps simplify the interpretation process of a decision tree:

1. The first step is understanding and specifying the problem area for which decision making
is required.
2. The second step is interpreting and chalking out all possible solutions to the particular
issue as well as their consequences.
3. The third step is presenting the variables on a decision tree along with its respective
probability values.
4. The fourth step is finding out the outcomes of all the variables and specifying it in the
decision tree.
5. The last step is highly crucial and backs the overall analysis of this process. It involves
calculating the EMV values for all the chance nodes or options, to figure out the solution
which provides the highest expected value.

Decision Tree Analysis Example

To enlighten upon the decision tree analysis, let us illustrate a business situation.

ABC Ltd. is a company manufacturing skincare products. It was found that the business is at the
maturity stage, demanding some change. After rigorous research, management came up with
the following decision tree:

In the above decision tree, we can easily make out that the company can expand its existing unit
or innovate a new product, i.e., shower gel or make no changes.

Given below is the evaluation of each of these alternatives:

Expansion of Business Unit:

If the company invests in the development of its business unit, there can be two possibilities,
i.e.:

 40% possibility that the market share will hike, increasing the overall profitability of the
company by ₹2500000;
 60% possibility that the competitors would take over the market share and the company
may incur a loss of ₹800000.

To find out the viability of this option, let us compute its EMV (Expected Monetary Value):

New Product Line of Shower Gel:

If the organization go for new product development, there can be following two possibilities:
  50% chances are that the project would be successful and yield ₹1800000 as profit;
 50% possibility of failure persists, leading to a loss of ₹800000.

To determine the profitability of this idea, let us evaluate its EMV:

Do Nothing:

If the company does not take any step, still there can be two outcomes, discussed below:

 40% chances are there that yet, the organization can attract new customers, generating a
profit of ₹1000000;
 60% chances of failure are there due to the new competitors, incurring a loss of ₹400000.

Given below is the EMV in such circumstances:

Interpretation

From the above evaluation, we can easily make out that the option of a new product line has the
highest EMV. Therefore, we can say that the company can avail this opportunity to make the
highest gain by ensuring the best possible use of its resources.

Advantages of Decision Tree Analysis

Business organizations need to consider various parameters during decision making. A decision
tree analysis is one of the prominent ways of finding out the right solution to any problem.
Let us now understand its various benefits below:

 Depicts Most Suitable Project/Solution: It is an effective means of picking out the

most appropriate project or solution after examining all the possibilities.
 Easy Data Interpretation and Classification: Not being rocket science, decision tree
eases out the process of segregation of the acquired data into different classes.
 Assist Multiple Decision-Making Tools: It also benefits the decision-maker by
providing input for other analytical methods like nature’s tree.
 Considers Both, Categorial and Numerical Data: This technique takes into
consideration the quantitative as well as the qualitative variables for better results.
 Initiates Variable Analysis: Its structured phenomena also facilitates the investigation
and filtration of the relevant data.

Disadvantages of Decision Tree Analysis

Decision tree analysis has multidimensional applicability. However, its usage becomes limited

due to its following shortcomings:

 Inappropriate for Excessive Data: Since it is a non-parametric technique, it is not

suitable for the situations where the data for classification is vast.
 Difficult to Handle Numerous Outcomes: If there are multiple possible results of
every decision, it becomes tedious to compile all these on a decision tree.
 Chances of Classification Errors: A less experienced decision tree maker usually
makes a mistake while putting the variables into different classes.
 Impact of Variance: Making even a slightest of change becomes problematic since it
results in a completely different decision tree.
 Unsuitable for Continuous Variables: Incorporating many open-ended numerical
variables increases the possibility of errors.
 Sensitive towards Biasness: A decision tree maker may lay more emphasis on
preferable variables which may divert the direction of analysis.
 Expensive Process: Collection of sufficient data, its classification and analysis demand
high expense, being a resource-intensive process.

Conclusion

In operations research, decision tree analysis holds an equal significance as that of PERT
analysis or CPM. It presents a complex decision problem, along with its multiple consequences
on paper.

This enables the decision-maker to figure out all the possible options available with him/her and
thus, simplifies the task.
How to Use Multivoting
 LIst all of the possible choices that the team must decide from.
 Take the total number of team mates that will be voting (n) and divide by 3. This gives you the
number of votes (v) each person gets.
o Ex. 12 team members / 3 = 4.
 Each person has those v number of votes to place on any of the options.
o A team member may put all of their votes on one topic or distribute them as they see fit.
o Ex. Mary puts 2 votes into option A, 1 vote on option B, and 1 vote on option C.
While Bob puts all 4 votes on option C.
 Tally the votes.
 The option with the most votes is the most preferred by the group.

When should you use multivoting?

 Use Multivoting:
o After brainstorming or some other expansion tool has been used to generate a long list of
possibilities.
 When the list must be narrowed down.
 When the decision must be made by group judgment.

Multivoting Videos

Procedure Adopted for Multi-voting

Technique
The multivoting technique (which is also known as nominal group technique),
begins with a brainstorming session, to generate a list of options, ideas,
problems, issues or solutions. For motivating to be productive, it’s important
that this list is exhaustive and covers most facets of the question in hand.
Once the list is ready, the following procedure can be initiated to achieve a
consensus of opinion.
1. Review each item on the list and explain it in clear, crisp terms, so as to
ensure that all participating team members have a fair understanding of
what each item means. It’s quite possible that some new and related
ideas may crop up during the review phase; these can be added to the
end of the list. If two or more ideas have some common ground, on the
basis of which they can be grouped together, then this is the stage where
this grouping must be carried out.
2. Assign every item on the list a reference number, which the team can use
on the voting cards. Before the voting can begin, the team is required to
set the number of items that can be voted for by the team members. As
a rule of thumb, this number is either one third or one fourth of the
number of items on the list. For instance, if the initial list contains 40
options this number can be set to 10 or 12.
3. To begin with the voting process, all participants are asked to build up
their personal list containing the set number of items, from the complete
list. Going with the above example every participant will be required to
choose 12 options that according to them are the most significant ones,
from the list.
4. Next, the participants must assign a score to each and every item on
their list. This scoring can be done in two ways –
1. Assigning a score to each item on a scale of 1-10, where 10 means
most important and one implies least important.

2. The items can be ranked on a priority basis using the set number as
the highest rank. In the example the participants would be required
to rank the most important option as 12.
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 With that done, its time to tally the votes, and add up the totals to
see how much each option has scored. After the tally, the list needs
 to be recompiled. For this it’s best to keep only the top 30-40%
options that have scored the highest, on the new revised list.
 With the new list in hand; the procedure will need to be repeated
until finally the list has condensed down to no more than 3 options.
 As a final step the final options are discussed and analyzed to assign
each of them a priority.
Although the multivoting technique involves a lengthy procedure, it proves to
be of great benefit in situations where there are too many options and the
situation demands a consensus over the final decision.

Pareto chart analysis – Excel examples free

download
Pareto Chart Analysis Example
 Simple Pareto Chart Analysis Example Download | PDF Download
This is the simple Excel made Pareto chart analysis example for to addressing the problems to identify
proper solution in order to solve it. This ready made template may help you by customize with your own
data and information for prepare your own Pareto chart. This Pareto chart analysis works on 80/20 Rule,
which is most important to resolve the issues.
Free Pareto chart analysis template

Pareto chart analysis template

Pareto Chart Analysis Template Download | PDF Template Download
Usually, when you are going to create Pareto chart, first of all you have to organize your data for
preparing the chart. Here as you can see with above picture, there are number of defects details are
given which are occurring during the production. Even the Details of defects and number of product are
rejected during the April 2019. This is example of the Pareto chart for better understanding. As bottom
of the image, you can see the Pareto chart with curve which describing the which defect is on priority.
When you are identifying the 20% areas of the defects on which you require to focus for resolve. You
have to focus and identify the proper solution on it.

Pareto chart analysis excel example

Pareto chart analysis excel example

Excel example Download | Example Pareto PDF Download
Here as you can see above instant example of the Pareto chart analysis is for Steel tubing
manufacturing unit. If any manufacturing unit having the number issues as described in above picture,
the example describing how to deal with these issues and how to set priority for the element issues. As
80/20 rule, when you focus on major or 20% issues which are on priority, you may enable to solve
remain 80% issues or getting benefits in line with Pareto chart analysis.

How to create a cost benefit analysis template in Excel

 July 30, 2019  Emily Martin
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Imagine if you’ve undertaken a massive project that you had assumed would deliver
significant improvements to your organization. However, before you started you hadn’t taken
the time to work out what those benefits are, what impacts they would have and importantly
whether they outweigh the costs of implementation and sustainment?
You could find out that you’ve spent a significant amount on something that hasn’t helped
your business.
To mitigate this, most organizations utilize something called the Cost-Benefit Analysis
process, which calculates the financial benefit based on a series of inputs (namely all one-off
and recurring costs plus all one-off and recurring benefits). Subtracting the total costs from
the total benefits gives you the impact of the project in financial terms to your business.
Utilizing Cost-Benefit Analysis is very common and it’s typically undertaken at the very start
of a project (usually to determine if it’s worthwhile progressing).
In this post, we’ll look at how to create a Cost-Benefit Analysis template in Excel plus look at
the background of the process together with a few things to watch out for to ensure your
process is optimized.
So let’s get stuck in.

What is a cost-benefit analysis and why is it important?

As we described above, the cost-benefit analysis tool is a process that is used to compare
the overall costs relating to a project to the benefits that may be produced.
The primary benefit of the tool is that it provides a quantifiable result that can be used to
understand and communicate the financial impact of a project. From the outset, this
assumes that the project can be quantified in financial terms (for example many projects
may have non-quantifiable benefits i.e. customer satisfaction that is a key factor in project
launch.)
Cost-Benefit Analysis tools are typically used by the project leadership to determine the
viability of a project during the project initiation phase.

What is a cost-benefit analysis process?

Cost-benefit analysis is typically conducted over several steps, these usually include:
Determine the measurements that you’ll use to determine the Cost/Benefit? Have a clear
and consistent method of determining your cost/benefit analysis, one that is easily
communicable to your stakeholders
Utilize a standard currency? It might seem obvious but you’ll want to ensure that all
costs/benefits are shown in a standard uniform currency
Determine the project goals? By having a clear view of your objective you’re better informed
on what data to gather to support your cost-benefit.
Gather good data? The result of the Cost-Benefit will be driven by the numbers that you use.
You need to ensure you have access to good data and that’s foremost accurate and
secondly acceptable to your key stakeholders. Remember that you are likely to have one-off
costs and recurring costs that may stretch out into future years.
Gathering data around benefits can be tricky – you’re likely to have benefits that produce a
financial benefit (i.e. a saving) and an intangible benefit (i.e. customer satisfaction).
Sometimes they are as important as each other, sometimes the intangible benefits outweigh
the financial ones. Cost-benefit analysis templates invariably focus on the financial elements
although you can depending on your situation, look to accommodate both.
Don’t ignore other projects/scenarios. There could be several options open to you in terms of
project deployment which might lead to different Cost-benefit results. It’s important to utilize
the tool as a modeling tool where you can run numerous scenarios and evaluate before
making your final decision.
Who are your stakeholders and how will they utilize the Cost-Benefit? Draw up a list of your
project’s stakeholders and determine how they will use the analysis, perhaps they are a
decision-maker and will use the results to determine a way forward? Perhaps they are a
member of the deployment team who will utilize the analysis to validate results against.
Whichever way, look to see how the tool and its results will be used within the project.
What does the Cost-Benefit Analysis tell you? Does the analysis provide clear direction? If
not why? What changes to the analysis need to be made and where you are scenario
planning do you need to make these changes to all scenarios?
Determine your NPV process for the analysis. Many Cost-Benefit Analysis models will utilize
a form of discounting so that you can review benefits at current value, this is a step that’s
often missed and as a result, the analysis can sometimes be misleading. Have a process
agreed for this before you start?
Utilize some form of Sensitivity Analysis? How certain of the input/output are you? Is there
any risk around the numbers your using? How can you mitigate this?
Next steps? Great, you’ve produced some analysis, now what? Have a procedure
determined upfront where you’ll know what you’re going to do with the numbers (perhaps
part of your project initiation phase?) and how they play a part of your project’s next steps.

How to create a Cost-Benefit Analysis Excel Template

Luckily creating a cost-benefit analysis template in excel is fairly straightforward. Whilst you
can utilize some of the features in Excel to help populate the table (such as the NPV
formulae) if you like, you can also produce the template as a blank table that you can
populate with the appropriate data.
We’ve pulled together a template that you can see below:
You can produce this with a little basic knowledge of formatting and data entry.
As ever before you start with this sort of thing it’s important that you map out what you’re
trying to achieve and a structure for the template that works best for you. With ours, we’ve
segregated it into 4 broad sections
· Header – the title, owner, date created, etc
· Costs – (we’ve separated capital and recurring costs – you may have others such as
financing costs etc)
· Benefits – here we’ve listed financial benefits only – I’ve come across various templates for
Cost-Benefit that show intangible benefits (non-financial) but in our template we’ve stuck to
financial ones only
· Discounted cash flow & NPV – again we’ve seen some templates with and some without –
it’s a good idea to use it so you’re comparing apples with apples but it’s a personal choice.
So let’s take a look at each section in a little more detail.
1/ The header – This lists the salient points relating to the project, in ours it contains
* Project Name
* Project Manager/Owner
* Date created
* Document revision number
Note the above is a personal choice and you may well choose to add/delete element to that
section.
2/ Table Header
As the cost-benefit will be constructed in a table let’s take a look at what information we’re
gathering by reviewing the header. it contains:

 Description (note the table is split into Costs & Benefits)

 Period – in our template we’ve shown it as Year 1 through to Year 5
 Total – here’ we’ll use the SUM() command to add up the contents of the period
columns

3/ Costs
OK – so now we have our table established, now we’ll start on populating the information we
want in the costs section: – here we’re going to split the element into several sections that
are relevant to our business/project (again results may differ for your project). We’ve split
them into
· Capital costs
· Recurring costs
· Financing costs
At the foot of this section of the table (we’ve shaded it in green) we’ve added a total column
that you can use the SUM() formulae to calculate each row,
What’s key here is that the table is segmented how you want to view your costs in relation to
your project/business – note we’ve chosen types of costs – you might want to segment parts
of your project i.e. hardware, software, resources or maybe align it to how your business
typically reports its finances, the choice is yours.
4/ Benefits
Now we’ll add the benefits – in much the same way as we added costs we’ll define the
benefits in how we want to see them – here we’ve chosen to have just one group – again
you may chose to visualize them differently.
Once again we’ve totaled them at the bottom of the table element ( again highlighted in
green).
5/ Net Cash Flow (in yellow on our example).
This row looks to calculate the benefit (or otherwise) of your project and should represent
Total Benefit – Total Cost
6/ Discount rate & NPV
I’m not going to go into detail here on how this is calculated (you can go here or here for
that) – or even say you should definitely include this section (there are pro’s/cons). However,
for completeness, I’ve added this to our template. Its purpose is to show the financial benefit
at today’s rate (i.e discounted from assumed growth of later periods. We’ve included the
following in this section
· Discount rate – what rate we’re applying to later year totals
· Discount factor – the % discount rate for each year
· Discounted cash flow – the actual benefits calculated using the above
· NPV – the NPV for the series of years being calculated

What are the problems with Cost-Benefit Analysis process.

So now we’ve been through how to create a simple excel cost-benefit analysis template we’ll
take a look at some common issues with the process so you can look to steer clear of them
in your methodology. Unsurprisingly many of them center around the quality of the data.
· Accuracy of numbers
Clearly, you need accurate data in a tool like this, where/how you obtain the data can be
crucial. Do not attempt this form of analysis (especially if you’re going to use it drive project
start) if your analysis is based on poor data.
· Completeness
Similar to the above – consider how you’ll capture all the data you need. Often teams might
miss a category of cost – this is often determined by those stakeholders that participate in
the analysis, consider who in your organization has access to the data and spend time
considering what needs to be included and why.
· Benefits & Benefits realization
Project managers love to start projects and can often be overly optimistic in terms of what
benefits can be derided (after all they want their project to be launched and for it to be
viewed as important -yep Project Managers have egos!!). Be careful that you are sensible
about your numbers, make sure they are grounded in fact and where you do forecast this is
done with a level of pragmatism.
· How should you treat nonfinancial benefits
One of the common conundrums is how to treat non financial benefits (i.e. customer
satisfaction). These are often as important as the financial ones and analysis such as this
excludes them. This often requires alot of careful thought.
· Scenario Planning
Don’t just do one level of analysis, scenario plan based on different ‘ingredients’. You want
your project to be optimized and there may be several ways that it could be structured
releasing different costs/benefits. Take some time to scenario plan so that you can consider
these.
 · NPV/Discounted rates
Without a doubt, this has a level of complexity around it. It’s perhaps best left to
stakeholders that fully understand it (hey that’s your finance department) so that the
numbers are accurately interpreted.

Let’s assume a scenario where a product marketer needs to measure the impact of
individual product features on the estimated market share or sales revenue.

In this conjoint analysis example, we’ll assume the product is tablets, perhaps a competitor
to the Apple iPad and Samsung Galaxy. The organization needs to understand how different
customers value Attributes such as Size, Brand, Price, and Battery Length. Armed with this
information, they can create their product range to match consumer preferences.

Conjoint Analysis assigns values to these product Attributes and Levels by creating realistic
choices and asking people to evaluate them. Math is then used to calculate what the
underlying values are.

Conjoint Analysis
Conjoint Analysis enables businesses to mathematically analyze consumer or client
behavior and make decisions based on real insights from customer data. This allows them to
better cater to consumer needs and develop business strategies that provide a competitive
edge. To fulfill customer wishes in a profitable way requires companies to fully understand
which aspects of their product and service are most valued by the customer.

Conjoint analysis is considered to be the best survey method for determining customer

values. It consists of creating, distributing, and analyzing surveys among customers with the
purpose of modeling their purchasing decision based on response analysis.

QuestionPro can automatically compute and analyze mathematical values to explain

consumer behavior. Our software analyzes responses to see how much value is placed on
price, features, geographic location, and other factors. The software then correlates this data
to consumer profiles. A software-driven regression analysis of data obtained from real
customers makes for an accurate analysis, instead of a hypothesis.

Reliable, accurate data gives your business the best chance to produce a product or service
that meets all the needs and wants of your customers.
 

Currently, Choice-Based Conjoint Analysis is the most popular form of conjoint. Participants

are shown a series of options and asked to select the one they would be most likely to
buy. Other forms of conjoint include asking participants to rate or rank products. Choosing a
product to buy usually yields more accurate results than ranking systems.

Check out our Conjoint Analysis Survey Template

Each participant is shown several choices of products or features. The answers they give
allow our software to work out the underlying values. For example, the program can work out
what their preferred size is, and how much they would pay for their preferred brand. Once
we have the choice data, there is a range of analytic options. The key tools for analysis
include What-if modeling, forecasting, segmentation, and applying cost-benefit analyzes.

When and how to use Conjoint Analysis

Overview of Conjoint Analysis
Over the past 50 years, Conjoint analysis has evolved into a method that market
researchers and statisticians implement to predict the kinds of decisions consumers will
make about products by using questions in a survey.

The central idea is that for any purchase decision, consumers evaluate different
characteristics of a product and decide which are more important to them. The primary aim
of an online conjoint survey is to set distinct values to the alternatives that the buyers may
consider when making a purchase decision. Equipped with this knowledge, marketers can
target the features of products or services that are highly important and design messages
more likely to strike a chord with target buyers.

The discrete choice conjoint analysis presents a set of possible choices to consumers via a
survey and asks them to make a decision on which one they would pick. Each concept is
composed of a set of attributes (e.g. color, size, price) which are detailed by a set of levels.

Conjoint models predict respondent preference. For instance, we could have a conjoint
study on laptops. The laptop can come in 3 colors (white, silver, and gold), 3 screen sizes
(11”, 13”, and 15”), and 3 prices ($200, $400, and $600). This would give 3 x 3 x 3 possible
product combinations. In this example, there are 3 attributes (color, size, and price) with 3
levels per attribute.

A set of concepts, or tasks, based on the defined attributes are presented to respondents.
Respondents make choices as to which product they would purchase in real life. It is
important to note that there are a lot of variations of conjoint techniques. QuestionPro survey
software uses choice-based analysis, which most accurately simulates the purchase
process of consumers.

Learn More: Market Research Survey Software

Key conjoint analysis terms

Attributes (Features): The product features being evaluated by the analysis. Examples of
attributes for Laptops: Brand, Size, Color, and Battery Life.

Levels: The specifications of each attribute. Examples of levels for Laptops include Brands:
Samsung, Dell, Apple, and Asus.

Task: The number of times the respondent must make a choice. The example shows the
first of the 5 tasks as indicated by “Step 1 of 5.”
Concept or Profile: The hypothetical product or offering. This is a set of attributes with
different levels that are displayed at each task count. There are usually at least two to
choose from.

Relative importance: Also known as “attribute importance,” this depicts which of the various
attributes of a product/service are more or less important when making a purchasing
decision. Example of Laptop Relative Importance: Brand 35%, Price 30%, Size 15%, Battery
Life 15%, and Color 5%.

Part-Worths/Utility values: Part-Worths, or utility values, is how much weight an attribute

level carries with a respondent. The individual factors that lead to a product’s overall value to
consumers are part-worths. Example part-worths for Laptops Brands: Samsung – 0.11, Dell
0.10, Apple 0.17, and Asus -0.16.

Profiles: Discover the ultimate product with the highest utility value. At a glance,
QuestionPro lets you compare all the possible combinations of product profiles ranked by
utility value to build the product or service that the market wants.

Market share simulation: One of the most unique and fascinating aspects of conjoint
analysis is conjoint simulator. This gives you the ability to “predict” the consumer’s choice for
new products and concepts that may not yet exist. Measure the gain or loss in market share
based on changes to existing products in the given market.

Brand Premium: How much more will a customer pay for a Samsung versus an LG
television? Assigning price as an attribute and tying that to a brand attribute returns a model
for a $ per utility distribution. This is leveraged to compute the actual dollar amount relative
to any attribute. When the analysis is done relative to the brand, you get to put a price on
your brand.

Price elasticity and demand curve: Price elasticity relates to the aggregate demand for a
product and the shape of the demand curve. We calculate it by plotting the demand
(frequency count/total response) at different levels of price.

Types of conjoint analysis

There are two main types of conjoint analysis: Choice-based Conjoint (CBC) Analysis and
Adaptive Conjoint Analysis (ACA).

Choice-based Conjoint (CBC) Analysis:

This type of conjoint analysis is the most popular because it asks consumers to imitate the
purchasing behavior in the real market: which products they would choose, given certain
criteria on price and features.

For example, each product or service has a specific set of fictional characters. Some of
these characters might be similar to each other or will differ. For instance, you can present
your respondents with the following choice

Device 1 Device 2 
 6.7-inch Quad HD Super AMOLED Display 6.67-inch Quad HD AMOLED Display
 Qualcomm Snapdragon 855 chipset  Qualcomm Snapdragon 855 chipset
 6GB RAM, 128 GB Storage  6GB RAM, 128 GB Storage
 Dual rear camera (12MP+16MP)  Triple rear camera (48MP+8MP+16MP)
 4,000 mAh battery with 30w Dash Charging 2800mAh/3700mAh batteries
The devices are almost identical, but device 1 has triple cameras with better configuration,
and Device 1 has a higher battery power compared to Device 2. By analyzing the
responses, you would know how vital is the trade-off between the number of cameras and
battery capacity.

Adaptive Conjoint Analysis (ACA):

This type of conjoint analysis is used more often in scenarios where the number of
attributes/features exceeds what can be done in a choice based scenario. ACA is great for
product design and segmentation research, but not for determining the ideal price.

For example, the adaptive conjoint analysis is a graded-pair comparison task, wherein the
survey respondents are asked to assess their relative preferences between a set of
attributes.  Each pair is then evaluated on a pre-defined point scale.

QuestionPro uses CBC, or Discrete Choice Conjoint Analysis, which is a great option if the
price is one of the most important factors for you or your customers. The key benefit of the
method is that it provides a picture of the market’s willingness to make tradeoffs between
various features. The result is an answer to what constitutes an “ideal” product or service.

Level-up Conjoint Analysis insights
Conjoint delivers realistic and actionable insights

Although Conjoint analysis requires more involvement in survey design and analysis, the

additional planning effort is often worth it. With a few extra steps, you get an accurate look
into your customer’s biggest preferences when choosing a product.
Price, for example, is important to most folks shopping for a laptop. But how much more is
the majority willing to pay for longer battery life for their laptop if it means a heavier and
bulkier design? How much less in value is a smaller screen size compared to a slightly
larger one? Using conjoint surveys, you’ll discover these details before making a huge
investment in product development.

Conjoint is just a piece of the insights pie. Capture the full story with a cohesive pricing,
consumer preference, branding, or go-to-market strategy using other question types and
delivery methodologies to stretch the project to its full potential. With QuestionPro, you are
able to build and deliver comprehensive surveys that combine conjoint analysis results with
insights from additional questions or custom profiling information included in the survey.

What time is Conjoint O’ clock?

When is a good time to run a discrete choice conjoint analysis study?

We’re asked this question a lot. So much so that we’ve coined the term Conjoint O’ Clock. If
you find yourself needing to get into the mind of your customers to understand why they buy,
ask yourself what you hope to get from your insights. It’s time for Conjoint O’ Clock if you are
trying to:

 Launch a new product or service in the market

 Repackage existing products or services to the market
 Understand your customers and what they value in your products
 Gain actionable insight to increase your brand’s competitive edge
 Place a price on your brand versus competing brands
 Revamp your pricing structure

Conjoint Algorithm
To calculate the utility values or part-worths, we use a logic model coupled with a Nelder-
Mead Simplex algorithm. The benefit of this algorithm allows QuestionPro to offer a cohesive
and comprehensive survey experience all within one platform.

We understand that most businesses don’t need the complex details of our mathematical
analysis. However, we want to provide you with the transparency you need to use conjoint
survey results. Have confidence in your results by reviewing the algorithm below.

Notation:

 Let there be R respondents, with individuals r = 1 … R

 Let each respondent see T tasks, with t = 1 … T
 Let each task t have C concepts, with c = 1 … C
 If we have A attributes, a = 1 to A, with each attribute having La levels, l = 1 to La,
then the part-worth for a particular attribute/level is w’(a,l). In this exercise, we will be
solving this (jagged array) of part worths.
 We can simplify this to a one-dimensional array w(s), where the elements are {w′(1, 1),
w′(1, 2)…w′(1, L1), w′(2, 1)…w′(A, LA)} with w having S elements.
 A specific concept x can be shown as a one-dimensional array x(s), where x(s)=1 if
the specific attribute is available, and 0 otherwise.
 Let Xrtc represent the specific concept of the cth concept in the tth task for the r th
respondent. Thus, the experiment design is represented by the four-dimensional matrix X
with size RxTxCxS.
 If respondent r chooses concept c in task t then let Yrtc=1; otherwise 0.
 The value Ux of a definite idea is the total of the part-worths for those elements
available in the conception, i.e. the scalar product of x and w.
The Multi-Nominal Logit Model

For a simple choice between two concepts, with utilities U1 and U2, the multi-nominal logit
(MNL) model predicts that concept 1 will be chosen

Modeled Choice Probability

Let the choice probability (using MNL model) of choosing the cth concept in the tth task for the
r th respondent be:

Log-Likelihood Measure