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Petroleum Project

Petroleum Project

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Application of the AHP in project management
Kamal M. Al-Subhi Al-Harbi*
DepartmentofConstructionEngineeringandManagement,KingFahdUniversityofPetroleum&Minerals,KFUPMBox1468,Dhahran31261,SaudiArabia
Received 12 June 1998; received in revised form 2 March 1999; accepted 19 May 1999
Abstract
This paper presents the Analytical Hierarchy Process (AHP) as a potential decision making method for use in project manage-ment. The contractor prequali®cation problem is used as an example. A hierarchical structure is constructed for the prequali®cationcriteria and the contractors wishing to prequalify for a project. By applying the AHP, the prequali®cation criteria can be prioritizedand a descending-order list of contractors can be made in order to select the best contractors to perform the project. A sensitivityanalysis can be performed to check the sensitivity of the ®nal decisions to minor changes in judgements. The paper presents groupdecision-making using the AHP. The AHP implementation steps will be simpli®ed by using the `Expert Choice' professional soft-ware that is available commercially and designed for implementing AHP. It is hoped that this will encourage the application of theAHP by project management professionals.
#
2000 Elsevier Science Ltd and IPMA. All rights reserved.
Keywords:
Analytical hierarchy process; AHP; Project management; Contractor prequali®cation
1. Introduction
The Analytical Hierarchy Process (AHP) is a deci-sion-aiding method developed by Saaty [24±27]. It aimsat quantifying relative priorities for a given set of alter-natives on a ratio scale, based on the judgment of thedecision-maker, and stresses the importance of theintuitive judgments of a decision-maker as well as theconsistency of the comparison of alternatives in thedecision-making process [24]. Since a decision-makerbases judgments on knowledge and experience, thenmakes decisions accordingly, the AHP approach agreeswell with the behavior of a decision-maker. The strengthof this approach is that it organizes tangible and intan-gible factors in a systematic way, and provides a struc-tured yet relatively simple solution to the decision-making problems [29]. In addition, by breaking a pro-blem down in a logical fashion from the large, descend-ing in gradual steps, to the smaller and smaller, one isable to connect, through simple paired comparison judgments, the small to the large.The objective of this paper is to introduce the appli-cation of the AHP in project management. The paperwill brie¯y review the concepts and applications of themultiple criteria decision analysis, the AHP's imple-mentation steps, and demonstrate AHP application onthe contractor prequali®cation problem. It is hoped thatthis will encourage its application in the whole area of project management.
2. Multiple criteria decision analysis (MCDA)
Project managers are faced with decision environ-ments and problems in projects that are complex. Theelements of the problems are numerous, and the inter-relationships among the elements are extremely compli-cated. Relationships between elements of a problemmay be highly nonlinear; changes in the elements maynot be related by simple proportionality. Furthermore,human value and judgement systems are integral ele-ments of project problems [15]. Therefore, the ability tomake sound decisions is very important to the success of a project. In fact, Schuyler [28] makes it a skill that iscertainly near the top of the list of project managementskills, and notices that few of us have had formal train-ing in decision making.
0263-7863/00/$20.00
#
2000 Elsevier Science Ltd and IPMA. All rights reserved.PII: S0263-7863(99)00038-1International Journal of Project Management 19 (2001) 19±27www.elsevier.com/locate/ijproman* Tel.: +966-3-860-3312; fax: +966-3-860-3287.
E-mail address:
harbi@kfupm.edu.sa (K.M. Al-S. Al-Harbi).
 
Multiple criteria decision-making (MCDM) approa-ches are major parts of decision theory and analysis.They seek to take explicit account of more than onecriterion in supporting the decision process [5]. The aimof MCDM methods is to help decision-makers learnabout the problems they face, to learn about their ownand other parties' personal value systems, to learn aboutorganizational values and objectives, and throughexploring these in the context of the problem to guidethem in identifying a preferred course of action[5,12,20,32,34,35]. In other words, MCDA is useful incircumstances which necessitate the consideration of dierent courses of action, which can not be evaluatedby the measurement of a simple, single dimension [5].Hwang and Yoon [14] published a comprehensivesurvey of multiple attribute decision making methodsand applications. Two types of the problems that arecommon in the
project management
that best ®t MCDAmodels are evaluation problems and design problems.The
evaluation problem
is concerned with the evaluationof, and possible choice between, discretely de®nedalternatives. The
design problem
is concerned with theidenti®cation of a preferred alternative from a poten-tially in®nite set of alternatives implicitly de®ned by aset of constraints [5].
3. The analytical hierarchy process (AHP)
Belton [4] compared AHP and a simple multi-attri-bute value (MAV), as two of the multiple criteriaapproaches. She noticed that both approaches havebeen widely used in practice which can be considered asa measure of success. She also commented that thegreatest weakness of the MAV approach is its failure toincorporate systematic checks on the consistency of  judgments. She noticed that for large evaluations, thenumber of judgments required by the AHP can besomewhat of a burden.A number of criticisms have been launched at AHPover the years. Watson and Freeling [33] said that inorder to elicit the weights of the criteria by means of aratio scale, the method asks decision-makers mean-ingless questions, for example: `Which of these two cri-teria is more important for the goal? By how much?'Belton and Gear [6] and Dyer [9] pointed out that thismethod can suer from rank reversal (an alternativechosen as the best over a set of 
, is not chosen whensome alternative, perhaps an unimportant one, is exclu-ded from
). Belton and Gear [7] and Dyer and Wendel[10] attacked the AHP on the grounds that it lacks a®rm theoretical basis. Harker and Vargas [13] and Perez[19] discussed these major criticisms and proved with atheoretical work and examples that they are not valid.They commented that the AHP is based upon a ®rmtheoretical foundation and, as examples in the literatureand the day-to-day operations of various governmentalagencies, corporations and consulting ®rms illustrate,the AHP is a viable, usable decision-making tool.Saaty [227] developed the following steps forapplying the AHP:1. De®ne the problem and determine its goal.2. Structure the hierarchy from the top (the objec-tives from a decision-maker's viewpoint) throughthe intermediate levels (criteria on which sub-sequent levels depend) to the lowest level whichusually contains the list of alternatives.3. Construct a set of pair-wise comparison matrices(size
n
Â
n
) for each of the lower levels with onematrix for each element in the level immediatelyabove by using the relative scale measurementshown in Table 1. The pair-wise comparisons aredone in terms of which element dominates theother.4. There are
n n
À
1
a
judgments required to developthe set of matrices in step 3. Reciprocals are auto-matically assigned in each pair-wise comparison.5. Hierarchical synthesis is now used to weight theeigenvectors by the weights of the criteria and thesum is taken over all weighted eigenvector entriescorresponding to those in the next lower level of the hierarchy.6. Having made all the pair-wise comparisons, theconsistency is determined by using the eigenvalue,
l
mx
, to calculate the consistency index, CI as fol-lows:
gs
l
mx
À
n
a
n
À
1
, where
n
is thematrix size. Judgment consistency can be checkedby taking the consistency ratio (CR) of CI with theappropriate value in Table 2. The CR is accep-table, if it does not exceed 0.10. If it is more, the judgment matrix is inconsistent. To obtain a con-sistent matrix, judgments should be reviewed andimproved.7. Steps 3±6 are performed for all levels in the hier-archy.
Table 1Pair-wise comparison scale for AHP preferences [24±27]Numerical rating Verbal judgments of preferences9 Extremely preferred8 Very strongly to extremely7 Very strongly preferred6 Strongly to very strongly5 Strongly preferred4 Moderately to strongly3 Moderately preferred2 Equally to moderately1 Equally preferred20
K. M. A.-S. Al-Harbi/International Journal of Project Management 19 (2001) 19±27 
 
Fortunately, there is no need to implement the stepsmanually. Professional commercial software, ExpertChoice, developed by Expert Choice, Inc. [11], is avail-able on the market which simpli®es the implementa-tion of the AHP's steps and automates many of itscomputations.
4. Group decision making
The AHP allows group decision making, where groupmembers can use their experience, values and knowl-edge to break down a problem into a hierarchy andsolve it by the AHP steps. Brainstorming and sharingideas and insights (inherent in the use of Expert Choicein a group setting) often leads to a more completerepresentation and understanding of the issues. Thefollowing suggestions and recommendations are sug-gested in the Expert Choice software manual [11].1. Group decisions involving participants with com-mon interests are typical of many organizationaldecisions. Even if we assume a group with com-mon interests, individual group members will eachhave their own motivations and, hence, will be incon¯ict on certain issues. Nevertheless, since thegroup members are `supposed' to be striving forthe same goal and have more in common than incon¯ict, it is usually best to work as a group andattempt to achieve consensus. This mode max-imizes communication as well as each groupmember's stake in the decision.2. An interesting aspect of using Expert Choice isthat it minimizes the dicult problem of `group-think' or dominance by a strong member of thegroup. This occurs because attention is focused ona speci®c aspect of the problem as judgments arebeing made, eliminating drift from topic to topicas so often happens in group discussions. As aresult, a person who may be shy and hesitant tospeak up when a group's discussion drifts fromtopic to topic will feel more comfortable in speak-ing up when the discussion is organized andattention turns to his area of expertise. SinceExpert Choice reduces the in¯uences of group-think and dominance, other decision processessuch as the well known Delphi technique may nolonger be attractive. The Delphi technique wasdesigned to alleviate groupthink and dominanceproblems. However, it also inhibits communica-tion between members of the group. If desired,Expert Choice could be used within the Delphicontext.3. When Expert Choice is used in a group session, thegroup can be shown a hierarchy that has beenprepared in advance. They can modify it to suittheir understanding of the problem. The groupde®nes the issues to be examined and alters theprepared hierarchy or constructs a new hierarchyto cover all the important issues. A group withwidely varying perspectives can feel comfortablewith a complex issue, when the issue is brokendown into dierent levels. Each member can pre-sent his own concerns and de®nitions. Then, thegroup can cooperate in identifying the overallstructure of the issue. In this way, agreement canbe reached on the higher-order and lower-orderobjectives of the problem by including all the con-cerns that members have expressed.The group would then provide the judgments. If the group has achieved consensus on some judg-ment, input only that judgment. If during the pro-cess it is impossible to arrive at a consensus on a judgment, the group may use some voting techni-que, or may choose to take the `average' of the judgments. The group may decide to give all groupmembers equal weight, or the group memberscould give them dierent weights that re¯ect theirposition in the project. All calculations are doneautomatically on the computer screen.4. The Group Meeting: While Expert Choice is anideal tool for generating group decisions through acohesive, rigorous process, the software does notreplace the components necessary for good groupfacilitation. There are a number of dierentapproaches to group decision-making, some betterthan others. Above all, it is important to have ameeting in which everyone is engaged, and there isbuy-in and consensus with the result.
5. Application of the AHP in project management
In this paper, contractor prequali®cation (an evalua-tion problem) will be used as an example of the possi-bility of using AHP in project management.Prequali®cation is de®ned by Moore [17] and Stephen[30] as the screening of construction contractors byproject owners or their representatives according to apredetermined set of criteria deemed necessary for suc-cessful project performance, in order to determine thecontractors' competence or ability to participate in theproject bid. Another formal de®nition by Clough [8] isthat prequali®cation means that the contracting ®rm
Table 2Average random consistency (RI) [24±27]Size of matrix 1 2 3 4 5 6 7 8 9 10Random consistency 0 0 0.58 0.9 1.12 1.24 1.32 1.41 1.45 1.49
K. M. A.-S. Al-Harbi/International Journal of Project Management 19 (2001) 19±27 
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