## Decision Matrix: A mathematical model to maximize profitability

I recently created a simple mathematical matrix for evaluating which money making opportunities would be the best to invest my time, talents and energy into in 2011. I am a strong believer that intuition, passion and purpose should be the ultimate guiding forces. However, there is a place for analytical tools as well. I will assume you, the reader, has a basic working knowledge of Ms Excel.

For those who are interested, you can access and copy this spreadsheet at Google docs: Decision Matrix. If you have any questions or problems, just let me know.

First of all, I listed 7 or 8 money making options under each of two general categories. 1. Current business 2. Prospective business(es). Then beside each of the 16 options I listed my decision criteria:

- a. Upside (high case) $$.
- b. Downside (low case) $$.
- c. Overall Odds ( likelihood of success; ie generating $$, expressed as a percentage).
- d. Interest. (personal passion index from 1-10)
- e. Formula: derived from averaging upside and downside (a+b/2), times overall odds (*c), multiplied by my interest level (divided by the dollar range – number of zeros; thus d/10000 because of 5-6 figure potential was the $$ range of my prospects +1

Therefore the overall formula is expressed thus in Ms Excel: *=**(C4**+**D4**/2**)*****E4*****(**F4**/10000**)**+1. *The formula creates a value expressed in 1.xx that will help you evaluate the best money making opportunities available to you from the options you list. Further calculations can help you estimate the range of money you are likely to generate.

To do this, first I summed the list 16 prospects thusly: sum column “a” (upside), sum column “b” (downside) and average column “c” (odds). Averaging the upside total (a) and the downside total (b) multiplied by the average odds will give you an idea of the range of money you will generate IF you were to pursue ALL your listed options. However, this is unlikely. However this creates a good baseline for comparison.

Then choose the best couple of options from your list (remember the 80/20 rule). Of my 16, i chose 4. Then run the same calculations on these choices: upside (a), downside (b) times average odds (c). What I discovered is that – because the potential $$ and odds were higher on my 4 choices then the 16… the resultant total potential $$ was higher on the 4, then it was on the 16! I would have a greater shot at making money investing my time, talents and energy in 4 things than I would at 16!

In addition, I came up with a reasonable estimate of the $$ i am likely to generate given the pursuit of my chosen options. It also gave me a list of options I may want to invest myself in that may not bring the highest earning potential, but are things I can do “on the side” that i have a high interest in/passion for. Keeping in mind that i can’t depend upon them as a main stay of my income. Hope this helps.

Max Thompsonsaid, on January 30, 2011 at 10:11 pmI love the fact that you quantify otherwise subjective, unquantifiable, material. It’s a type of “loose mathematics” based solely on the individual’s ability to rank various opinions or thoughts on a standardized scale. It must run in the blood because little over a year ago I set up an excel sheet with a similar formula as yours ranking my friend’s value by compatibility of personalities, personal history, skill set, intelligence, humor level, creativity, social status, materialistic gain (on my part, i.e. a friend with a big screen T.V. ect.), and an “other” category where I awarded points to people who have something about them that means a lot to me but is not already covered in a previous category. Except my system of ranking went from a negative 10 to positive 10. In this way scoring a 0 wasn’t bad. For example under materialistic gain, if the person in question scored a 0 they provided no extra objects to satisfy me, which is fine, but if they used me for my stuff they would score negatively. In the end i got a total score for each person (each category was weighted differently based on the category’s relevance to me liking the person) then proceeded to standardize the scores to a 0 to 100 system. In the end i ranked all 9 or 10 of my closest friends in order of their importance to me. I just thought it was strange/interesting that you did a similar type project with your potential job opportunities. Anyway I’ve rambled enough at this point.