Analytic Hierarchy Process (AHP)

Dr. Divya Choudhary

Indian Institute of Management Sambalpur

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 Introduction
 In our complex world system, we are forced to cope with more
problems than we have the resources to handle.

• What we need is not a more complicated way of thinking

but a framework that will enable us to think of complex
problems in a simple way.

• The AHP provides such a framework that enables us to

make effective decisions on complex issues by
simplifying and expediting our natural decision-making
processes.

 The AHP organizes feelings, intuition, and logic in a structured

approach to decision making.
 Introduction
 AHP was developed by Thomas L. Saaty.

Saaty, T.L., The Analytic Hierarchy Process, New York:

McGraw-Hill, 1980

 designed to solve complex problems involving multiple criteria.

 Allows the use of qualitative, as well as quantitative criteria in

evaluation.

 Handle group decision making situations in which the subjective

judgments of individuals constitute an important part of the
decision process.

 Output is a prioritized ranking indicating the overall preference

for each of the decision alternatives.
 Major Steps of AHP

1.) To develop a representation of the problem in terms of the

overall goal, the criteria, and the decision alternatives. (i.e., the
hierarchy of the problem)

2) To specify judgments about the relative importance of each

criterion in terms of its contribution to the achievement of the
overall goal.

3) To indicate a preference or priority for each decision alternative

in terms of how it contributes to each criterion.

4) Given the information on relative importance and preferences, a

mathematical process is used to synthesize the information
(including consistency checking) and provide a priority ranking of
all alternatives in terms of their overall preference.
Problem Hierarchy
 Example: Evaluation of Job Offers

 Peter is offered 4 jobs from Acme Manufacturing (A),

Bankers Bank (B), Creative Consulting (C), and
Dynamic Decision Making (D). He bases his
evaluation on the criteria such as location, salary and
job content.

 Objective

◦ Selecting a Job
 Criteria

◦ location, salary and job content

 Alternatives

◦ Job A, Job B, Job C, Job D

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 Hierarchy Development

S e le c t in g
Selecting
a N e w CaaJob r

S t y le
Location R eSalary
lia b ilit y F u e Content
lE conom y

Job A Job B Job C Job D

The first step in the AHP is to develop a graphical

representation of the problem in terms of the overall goal, the
criteria, and the decision alternatives. 7
 Pairwise Comparisons
 Pairwise comparisons are fundamental building blocks
of the AHP.

 The AHP employs an underlying scale with values

from 1 to 9 to rate the relative preferences for two
items.

 A basic, but very reasonable assumption for

comparing alternatives:
If attribute A is absolutely more important than
attribute B and is rated at 9, then B must be
absolutely less important than A and is graded as
1/9.
Ranking Scale for Criteria and Alternatives

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Pairwise Comparison of Criteria

Location Salary Content

Location 1 1/2 3

Salary 2 1 4

Content 1/3 1/4 1

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 Computing Weight of Criteria

1) Normalize the column entries by dividing each entry by

the sum of the column.

2) Take the overall row averages.

 Criteria weights
Location .30
Salary .60
Content .10

Selecting a Job
1.00

Location Salary Content

0.30 0.60 0.10

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 Checking for Consistency
 The next stage is to calculate a Consistency Ratio (CR) to
measure how consistent the judgments have been relative
to large samples of purely random judgments.

 AHP evaluations are based on the aasumption that the

decision maker is rational, i.e., if A is preferred to B and
B is preferred to C, then A is preferred to C.

 Ifthe CR is greater than 0.1 the judgments are

untrustworthy because they are too close to randomness
and the exercise is valueless or must be repeated.

 CR = Consistency Index/Random Index

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Calculation of Consistency Ratio
 Thefirst step is to calculate max so as to lead to the
Consistency Index and the Consistency Ratio.
 Consider [Ax = 
max x]

A x Ax x

1 0.5 3 0.30 0.90 0.30

0.60 0.60
2 1 4 = 1.60 = max
0.10 0.35 0.10
0.333 0.25 1.0

λmax=average{0.90/0.30, 1.60/0.6, 0.35/0.10}=3.06

Consistency index , CI is found by

CI=(λmax-n)/(n-1)=(3.06-3)/(3-1)= 0.03
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 Consistency Ratio
 The final step is to calculate the Consistency Ratio, CR by using
the table below, derived from Saaty’s book. The upper row is the
order of the random matrix, and the lower row is the
corresponding index of consistency for random judgments.

• A high CR would mean that the pair wise judgments are just
about random and are completely untrustworthy. In that case,
comparisons should be repeated.

In the above example: CR=CI/RI =0.03/0.58=0.05

0.05<0.1, so the evaluations are consistent.
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 Ranking alternatives
Priority vector
Location Job A Job B Job C Job D
Job A 1 1/4 4 1/6 0.13
Job B 4 1 4 1/4 0.24
Job C 1/4 1/4 1 1/5 0.07
Job D 6 4 5 1 0.56

Content Job A Job B Job C Job D

Job A 1 2 5 1 0.38
Job B 1/2 1 3 2 0.29
Job C 1/5 1/3 1 1/4 0.07
0.26
Job D 1 1/2 4 1

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 Ranking alternatives
Thousand/month Normalized
Salary Job A 34 .30
Job B 27 .24
Job C 24 .21
Job D 28 .25
1.0
113

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 Selecting a Job
1.00

Location Salary Content

0.30 0.60 0.10

Job A 0.13 Job A 0.30 Job A 0.38

Job B 0.24 Job B 0.24 Job B 0.29
Job C 0.07 Job C 0.21 Job C 0.07
Job D 0.56 Job D 0.25 Job D 0.26

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 Ranking of alternatives

Location

Content
Salary
Job A .13 .30 .38 .256 Preferable
.30
Job:
Job B .24 .24 .29 .245 Dynamic
x
.60 =
Job C .07 .21 .07 .154 Decision
Making
Job D .56 .25 .26 .10 .344

Priority matrix Criteria Weights

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How can Cost be brought into consideration
and what would be the best alternative?

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 Cost of Relocation

Brands Cost Normalized

Value

JOB A
51600 0.257
JOB B
49600 0.247
JOB C
48600 0.242
JOB D
50700 0.253

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 Job Selection

Overall Priority Ranking of Jobs

Brands Priority Cost Cost to Ranking

Vector Benefit
(Benefit) Ratio
JOB A 0.256 0.257 1.003 2
JOB B 0.245 0.247 1.008 3
JOB C 0.154 0.242 1.571 4
JOB D 0.344 0.253 0.735 1

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 Case: Decision Making at A-Cat Corp.

Which is the most important aspect for the transformer

selection?

What would be the best alternative if the person wants to

focus on the efficiency?

What would be the best alternative if company wants to

focus on power factor and efficiency?

As a final decision maker, what would be your decision

and how would you justify it?
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