Professional Documents
Culture Documents
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Typical application areas
Resource allocation
Hiring, evaluating and promoting employees
TQM
Strategic planning
Relocation decisions
Vendor selection
Evaluating mergers and acquisitions
Selecting a car for purchasing
Deciding upon a place to visit for vacation
Deciding upon an MBA program after graduation.
How widespread is its use?
IBM NASA
Goodyear IRS
Ford Motor Co. FBI
..a few of the thousands of Citibank Department of
organizations using AHP Defense
and EC Xerox World Bank
Boeing Texaco
AT&T Eastman Kodak
General Motors Inter-American
Bank
AHP-General Idea
Develop an hierarchy of decision criteria and define the
alternative courses of actions.
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Example: Car Selection
Objective
◦ Selecting a car
Criteria
◦ Style, Reliability, Fuel-economy Cost?
Alternatives
◦ Civic Coupe, Saturn Coupe, Ford Escort,
Mazda Miata
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Analytic Hierarchy Process
►Step 1: Structure a hierarchy. Define the problem,
determine the criteria and identify the
alternatives.
Overall Goal Select the Best Toothbrush Manufacturer
S e le c t in g
a N ew C ar
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Analytic Hierarchy Process
Step 2: Make pairwise comparisons. Rate
the relative importance between each pair
of decision alternatives and criteria.
Analytic Hierarchy Process
Step 2 (cont’d): AHP uses 1-9 scale for the
prioritization process.
Numerical ratings Verbal judgments
1 Equally important (preferred)
3 Moderately more important
5 Strongly more important
7 Very strongly more important
9 Extremely more important
Analytic Hierarchy Process
Step 2 (cont’d): Intermediate numerical
ratings of 2, 4, 6, and 8 can be assigned. If
someone could not decide whether one
criterion (alternative) is moderately more
important than the other one or strongly
more important than the other one, 4
(moderately to strongly more important)
can be assigned.
Analytic Hierarchy Process
Row
Normalized 0.30 0.29 0.38 0.30
1 0.5 3 Column Sums
averages
A= 2 1 4 0.60 0.57 0.50 0.60
X=
0.33 0.25 1.0 0.10 0.14 0.13 0.10
Priority vector
Column sums 3.33 1.75 8.00 1.00 1.00 1.00
Eigen Vector
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Consistency - 1
An important consideration in terms of the
quality of the ultimate decision relates to the
consistency of judgments that the decision
maker demonstrated during the series of
pairwise comparisons.
◦ It should be realized perfect consistency is very
difficult to achieve and that some lack of consistency
is expected to exist in almost any set of pairwise
comparisons.
◦ Example:
Consistency - 2
To handle the consistency question, the AHP
provides a method for measuring the degree of
consistency among the pairwise judgments
provided by the decision maker.
◦ If the degree of consistency is acceptable, the decision
process can continue.
◦ If the degree of consistency is unacceptable, the
decision maker should reconsider and possibly revise
the pairwise comparison judgments before proceeding
with the analysis.
Consistency Ratio
The AHP provides a measure of the
consistency of pairwise comparison
judgments by computing a consistency
ratio
◦ The ratio is designed in such a way that values
of the ratio exceeding 0.10 are indicative of
inconsistent judgments.
◦ Although the exact mathematical computation
of the consistency ratio is beyond the scope of
this text, an approximation of the ratio can be
obtained.
Procedure: Estimating Consistency Ratio - 1
Step 1: Multiply each value in the first column of
the pairwise comparison matrix by the
relative priority of the first item considered.
Same procedures for other items. Sum the
values across the rows to obtain a vector of
values labeled “weighted sum.”
Step 2: Divide the elements of the vector of
weighted sums obtained in Step 1 by the
corresponding priority value.
Step 3: Compute the average of the values
computed in step 2. This average is
denoted as lmax.
Procedure: Estimating Consistency Ratio - 2
Step 4: Compute the consistency index (CI):
λ max n
CI
n 1
Where n is the number of items being compared
n 1 2 3 4 5 6 7 8 9 10
RI 0.00 0.00 0.58 0.90 1.12 1.24 1.32 1.41 1.45 1.49
Example: Inconsistency
Preferences: If, A B (2); B C (6)
Then, A C (should be 12) (actually 8)
Inconsistency
λ max n 3.019 3
CI 0.010
n 1 3 1
CI 0.010
CR 0.017 0.10
RI 0.58
The degree of consistency exhibited in the pairwise comparison
matrix for comfort is acceptable.
Development of Priority Ranking
The overall priority for each decision
alternative is obtained by summing the
product of the criterion priority (i.e.,
weight) (with respect to the overall goal)
times the priority (i.e., preference) of the
decision alternative with respect to that
criterion.
Ranking these priority values, we will
have AHP ranking of the decision
alternatives.
Example:
Example: Priority Ranking – 0A
Step 0A: Other pairwise comparison matrices
Comfort Car A Car B Car C Price Car A Car B Car C
Car A 1
Criterio
2 Price 8 Car Comfort
MPG A 1Style 1/3 ¼
Car B 1/2
n 1 6 Car B 3 1 ½
Car C Price
1/8 1/6 1 1 3 C
Car 2 4 2 2 1
MPG 1/3 1 1/4 1/4
MPG CarComfort
A Car B Car
1/2 C Style
4 1Car A 1/2Car B Car C
Car A 1
Style 1/4 1/21/6 Car
4 A 2 1 1 1/3 4
Car B 4 1 1/3 Car B 3 1 7
Car C 6 3 1 Car C 1/4 1/7 1
Ranking of Criteria
Criterion Price MPG Comfort Style Criterion Price MPG Comfort Style
Price 1 3 2 2
Price 3/7 3/12 8/21 8/15
MPG 1/3 1 1/4 1/4
MPG 1/7 1/12 1/21 1/15
Comfort 1/2 4 1 1/2
Comfort 3/14 4/12 4/21 2/15
Style 1/2 4 2 1
Style 3/14 4/12 8/21 4/15
Column 7/3 12 21/4 15/4
total
Criterion
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Ranking of Alternative
Price MPG Comfort Style Criterion
Style
rt
Comfo
MPG
Priority matrix
Criteria Weights 35
Complex decisions
• Many levels of criteria and sub-criteria exists for
complex problems.
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AHP Software:
◦ computations
◦ sensitivity analysis
◦ graphs, tables
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More about AHP: Pros and Cons
AHP is technique for formalizing decision making such that
• It is applicable when it is difficult to formulate criteria evaluations, i.e., it allows
qualitative evaluation as well as quantitative evaluation.
• It is applicable for group decision making environments
However
• There are hidden assumptions like consistency
• Difficult to use when there are large number of evaluations Use GDSS
Use constraints to
eliminate some alternatives
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Group Decision Making
The AHP allows group decision making, where group members can use their
experience, values and knowledge to break down a problem into a hierarchy
and solve. Doing so provides:
However;
The GDSS does not replace all the requirements for group decision making.
Open meetings with the involvement of all members are still an asset.
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References
Al Harbi K.M.A.S. (1999), Application of AHP in Project Management, International
Journal of Project Management, 19, 19-27.
Haas R., Meixner, O., (2009) An Illustrated Guide to the Analytic Hierarchy Process,
Lecture Notes, Institute of Marketing & Innovation, University of Natural Resources
and http://www.boku.ac.at/mi/
Saaty, T.L., Vargas, L.G., (2001), Models, Methods, Concepts & Applications of the
Analytic Hierarchy Process, Kluwer’s Academic Publishers, Boston, USA.
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Exercise
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Case
A motorist is using the AHP to choose a new car from three possible
models: an Arrow, a bestmobile and a commuter. The choice will be
based on just two attributes: cost and style. The motorist considers
that cost is weakly more important than style.
When asked to compare the costs of the cars, the motorist makes
the following statements: on cost, the bestmobile is weakly preferred
to the arrow, but the arrow is weakly preferred to the commuter. Also
the best mobile is extremely preferred to the commuter.