# Chapter 15 Multicriteria Decisions

Goal Programming Goal Programming: Formulation and Graphical Solution Scoring Models Analytic Hierarchy Process (AHP) Establishing Priorities Using AHP Using AHP to Develop an Overall Priority Ranking

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Slide 1

Goal Programming

Goal programming may be used to solve linear programs with multiple objectives, with each objective viewed as a "goal". In goal programming, di+ and di- , deviation variables, variables, are the amounts a targeted goal i is overachieved or underachieved, respectively. The goals themselves are added to the constraint set with di+ and di- acting as the surplus and slack variables.

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Slide 2

Goal Programming

One approach to goal programming is to satisfy goals in a priority sequence. Second-priority goals are sequence. Secondpursued without reducing the first-priority goals, etc. firstFor each priority level, the objective function is to minimize the (weighted) sum of the goal deviations. Previous "optimal" achievements of goals are added to the constraint set so that they are not degraded while trying to achieve lesser priority goals.

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Slide 3

**Goal Programming Formulation
**

Step 1: Decide the priority level of each goal. Step 2: Decide the weight on each goal. If a priority level has more than one goal, for each goal i decide the weight, wi , to be placed on the deviation(s), di+ and/or di-, from the goal.

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Slide 4

**Goal Programming Formulation
**

Step 3: Set up the initial linear program. Min w1d1+ + w2d2s.t. Functional Constraints, and Goal Constraints Step 4: Solve the current linear program. If there is a lower priority level, go to step 5. Otherwise, a final solution has been reached.

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Slide 5

**Goal Programming Formulation
**

Step 5: Set up the new linear program. Consider the next-lower priority level goals and nextformulate a new objective function based on these goals. Add a constraint requiring the achievement of the next-higher priority level goals to be maintained. nextThe new linear program might be: Min w3d3+ + w4d4s.t. Functional Constraints, Goal Constraints, and w1d1+ + w2d2- = k Go to step 4. (Repeat steps 4 and 5 until all priority levels have been examined.)

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**Example: Conceptual Products
**

Conceptual Products is a computer company that produces the CP400 and CP500 computers. The computers use different mother boards produced in abundant supply by the company, but use the same cases and disk drives. The CP400 models use two floppy disk drives and no zip disk drives whereas the CP500 models use one floppy disk drive and one zip disk drive.

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Slide 7

**Example: Conceptual Products
**

The disk drives and cases are bought from vendors. There are 1000 floppy disk drives, 500 zip disk drives, and 600 cases available to Conceptual Products on a weekly basis. It takes one hour to manufacture a CP400 and its profit is $200 and it takes one and one-half hours to manufacture a oneCP500 and its profit is $500.

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Slide 8

**Example: Conceptual Products
**

The company has four goals: Priority 1: Meet a state contract of 200 CP400 machines weekly. (Goal 1) Priority 2: Make at least 500 total computers weekly. (Goal 2) Priority 3: Make at least $250,000 weekly. (Goal 3) Priority 4: Use no more than 400 man-hours per manweek. (Goal 4)

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Slide 9

Goal Programming: Formulation

Variables x1 = number of CP400 computers produced weekly x2 = number of CP500 computers produced weekly di- = amount the right hand side of goal i is deficient di+ = amount the right hand side of goal i is exceeded Functional Constraints Availability of floppy disk drives: Availability of zip disk drives: Availability of cases: 2x 2x1 + x2 < 1000 x2 < 500 x1 + x2 < 600

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Slide 10

Goal Programming: Formulation

Goals (1) 200 CP400 computers weekly: x1 + d1- - d1+ = 200 (2) 500 total computers weekly: x1 + x2 + d2- - d2+ = 500 (3) $250(in thousands) profit: .2x1 + .5x2 + d3- - d3+ = 250 .2x .5x (4) 400 total man-hours weekly: manx1 + 1.5x2 + d4- - d4+ = 400 1.5x NonNon-negativity: x1, x2, di-, di+ > 0 for all i

Slide 11

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Goal Programming: Formulation

Objective Functions Priority 1: Minimize the amount the state contract is not met: Min d1Priority 2: Minimize the number under 500 computers produced weekly: Min d2Priority 3: Minimize the amount under $250,000 earned weekly: Min d3Priority 4: Minimize the man-hours over 400 used manweekly: Min d4+

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Slide 12

Goal Programming: Formulation

Formulation Summary Min P1(d1-) + P2(d2-) + P3(d3-) + P4(d4+) s.t. < 1000 < 500 x1 < 600 = 200 x1 +d1- -d1+ = 500 x 1 +x 2 +d2- -d2+ = 250 .2x1+ .5x2 .2x .5x +d3- -d3+ x1+1.5x2 +1.5x +d4- -d4+ = 400 x1, x2, d1-, d1+, d2-, d2+, d3-, d3+, d4-, d4+ > 0 +x 2 +x 2 +x 2 2x 2x1

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Slide 13

Goal Programming: Graphical Solution

Iteration 1 To solve graphically, first graph the functional constraints. Then graph the first goal: x1 = 200. Note on the next slide that there is a set of points that exceed x1 = 200 (where d1- = 0).

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Slide 14

Goal Programming: Graphical Solution

**Functional Constraints and Goal 1 Graphed
**

x2

1000

800 600 400 200 200

2x1 + x2 < 1000 Goal 1: x1 > 200

x1 + x2 < 600

x2 < 500

Points Satisfying Goal 1

400

600

800

1000

1200

x1

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Slide 15

Goal Programming: Graphical Solution

Iteration 2 Now add Goal 1 as x1 > 200 and graph Goal 2: x1 + x2 = 500. Note on the next slide that there is still a set of points satisfying the first goal that also satisfies this second goal (where d2- = 0).

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Slide 16

Goal Programming: Graphical Solution

**Goal 1 (Constraint) and Goal 2 Graphed
**

x2

1000

800 600 400 200 200

2x1 + x2 < 1000 Goal 1: x1 > 200

x2 < 500

x1 + x2 < 600

Points Satisfying Both Goals 1 and 2 Goal 2: x1 + x2 > 500 400 600 800 1000 1200

x1

Slide 17

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Goal Programming: Graphical Solution

Iteration 3 Now add Goal 2 as x1 + x2 > 500 and Goal 3: .2x1 + .5x2 = 250. Note on the next slide that no points .2x .5x satisfy the previous functional constraints and goals and satisfy this constraint. Thus, to Min d3-, this minimum value is achieved when we Max .2x1 + .5x2. Note that this occurs at x1 = .2x .5x 200 and x2 = 400, so that .2x1 + .5x2 = 240 or d3- = 10. .2x .5x

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Slide 18

Goal Programming: Graphical Solution

**Goal 2 (Constraint) and Goal 3 Graphed
**

x2

2x1 + x2 < 1000 Goal 1: x1 > 200

1000

800 600 400 200 200 400

x1 + x2 < 600

x2 < 500

(200,400)

600

Points Satisfying Both Goals 1 and 2 Goal 2: x1 + x2 > 500 Goal 3: .2x1 + .5x2 = 250 x1 800 1000 1200

Slide 19

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**Scoring Model for Job Selection
**

A graduating college student with a double major in Finance and Accounting has received the following three job offers: financial analyst for an investment firm in Chicago accountant for a manufacturing firm in Denver auditor for a CPA firm in Houston

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Slide 20

Scoring Model for Job Selection

The student made the following comments: ´The financial analyst position provides the best opportunity for my longlong-run career advancement.µ ´I would prefer living in Denver rather than in Chicago or Houston.µ ´I like the management style and philosophy at the Houston CPA firm the best.µ Clearly, this is a multicriteria decision.

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Slide 21

Scoring Model for Job Selection

Considering only the long-run career longadvancement criterion: The financial analyst position in Chicago is the best decision alternative. Considering only the location criterion: The accountant position in Denver is the best decision alternative. Considering only the style criterion: The auditor position in Houston is the best alternative.

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Slide 22

**Steps Required to Develop a Scoring Model
**

decisionStep 1: List the decision-making criteria. Step 2: Assign a weight to each criterion. Step 3: Rate how well each decision alternative satisfies each criterion. Step 4: Compute the score for each decision alternative. Step 5: Order the decision alternatives from highest score to lowest score. The alternative with the highest score is the recommended alternative.

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Slide 23

Scoring Model for Job Selection

Mathematical Model

**Sj = 7wi rij 7w
**

i where: rij = rating for criterion i and decision alternative j Sj = score for decision alternative j

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Slide 24

Scoring Model: Step 1

List of Criteria Career advancement Location Management Salary Prestige Job Security Enjoyable work

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Scoring Model: Step 2

FiveFive-Point Scale Chosen Importance Weight Very unimportant 1 Somewhat unimportant 2 Average importance 3 Somewhat important 4 Very important 5

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Scoring Model: Step 2

Assigning a Weight to Each Criterion Importance Weight Very important 5 Average importance 3 Somewhat important 4 Average importance 3 Somewhat unimportant 2 Somewhat important 4 Very important 5

Criterion Career advancement Location Management Salary Prestige Job security Enjoyable work

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Slide 27

Scoring Model: Step 3

NineNine-Point Scale Chosen Level of Satisfaction Extremely low Very low Low Slightly low Average Slightly high High Very high Extremely high Rating 1 2 3 4 5 6 7 8 9

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Slide 28

Scoring Model: Step 3

Rate how well each decision alternative satisfies each criterion. Decision Alternative Analyst Accountant Auditor Chicago Denver Houston 8 6 4 3 8 7 5 6 9 6 7 5 7 5 4 4 7 6 8 6 5

Slide 29

Criterion Career advancement Location Management Salary Prestige Job security Enjoyable work

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Scoring Model: Step 4

Compute the score for each decision alternative. Decision Alternative 1 - Analyst in Chicago Criterion Weight (wi ) Rating (ri1) (w (r Career advancement 5 x 8 = Location 3 3 Management 4 5 Salary 3 6 Prestige 2 7 Job security 4 4 Enjoyable work 5 8 Score wiri1 40 9 20 18 14 16 40 157

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Scoring Model: Step 4

Compute the score for each decision alternative.

s j ! § wi rij

i

S1 = 5(8)+3(3)+4(5)+3(6)+2(7)+4(4)+5(8) = 157 S2 = 5(6)+3(8)+4(6)+3(7)+2(5)+4(7)+5(6) = 167 S3 = 5(4)+3(7)+4(9)+3(5)+2(4)+4(6)+5(5) = 149

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Slide 31

Scoring Model: Step 4

Compute the score for each decision alternative. Decision Alternative Analyst Accountant Auditor Chicago Denver Houston 40 9 20 18 14 16 40 157 30 24 24 21 10 28 30 167 20 21 36 15 8 24 25 149

Slide 32

Criterion Career advancement Location Management Salary Prestige Job security Enjoyable work Score

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Scoring Model: Step 5

Order the decision alternatives from highest score to lowest score. The alternative with the highest score is the recommended alternative.

** The accountant position in Denver has the highest
**

score and is the recommended decision alternative. alternative. Note that the analyst position in Chicago ranks first in 4 of 7 criteria compared to only 2 of 7 for the accountant position in Denver. But when the weights of the criteria are considered, the Denver position is superior to the Chicago job.

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Slide 33

Scoring Model for Job Selection

**Partial Spreadsheet Showing Steps 1 - 3
**

B C Analyst Chicago 8 3 5 6 7 4 8 D Accountant Denver 6 8 6 7 5 7 6 E Auditor Houston 4 7 9 5 4 6 5

A 1 RATINGS 2 3 Criteria 4 Career Advance. 5 Location 6 Management 7 Salary 8 Prestige 9 Job Security 10 Enjoyable Work

Weight 5 3 4 3 2 4 5

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Slide 34

Scoring Model for Job Selection

**Partial Spreadsheet Showing Formulas of Step 4
**

D Accountant Denver =B4*D4 =B5*D5 =B6*D6 =B7*D7 =B8*D8 =B9*D9 =B10*D10 =sum(D16:D22) E Auditor Houston =B4*E4 =B5*E5 =B6*E6 =B7*E7 =B8*E8 =B9*E9 =B10*E10 =sum(E16:E22)

A B C 12 SCORING CALCULATIONS 13 Analyst 14 Criteria Chicago 15 Career Advance. =B4*C4 16 Location =B5*C5 17 Management =B6*C6 18 Salary =B7*C7 19 Prestige =B8*C8 20 Job Security =B9*C9 21 Enjoyable Work =B10*C10 22 Score =sum(C16:C22)

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Slide 35

Scoring Model for Job Selection

**Partial Spreadsheet Showing Results of Step 4
**

C Anal Chicago 40 9 20 18 14 16 40 157 D Accountant Denver 30 24 24 21 10 28 30 167 E Auditor ouston 20 21 36 15 8 24 25 149

A B 12 SCORING CALCULATIONS 13 14 Criteria 15 Career Advance. 16 Location 17 Management 18 Salar 19 Prestige 20 Job Security 21 Enjoyable Wor 22 Score

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Slide 36

**Analytic Hierarchy Process
**

The Analytic Hierarchy Process (AHP), is a (AHP), procedure designed to quantify managerial judgments of the relative importance of each of several conflicting criteria used in the decision making process.

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Slide 37

Analytic Hierarchy Process

Step 1: List the Overall Goal, Criteria, and Decision Alternatives

------- For each criterion, perform steps 2 through 5 ------

Step 2: Develop a Pairwise Comparison Matrix Rate the relative importance between each pair of decision alternatives. The matrix lists the alternatives horizontally and vertically and has the numerical ratings comparing the horizontal (first) alternative with the vertical (second) alternative. Ratings are given as follows: . . . continued

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Slide 38

Analytic Hierarchy Process

Step 2: Pairwise Comparison Matrix (continued) Compared to the second alternative, the first alternative is: is: extremely preferred very strongly preferred strongly preferred moderately preferred equally preferred Numerical rating 9 7 5 3 1

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Slide 39

Analytic Hierarchy Process

Step 2: Pairwise Comparison Matrix (continued) Intermediate numeric ratings of 8, 6, 4, 2 can be assigned. A reciprocal rating (i.e. 1/9, 1/8, etc.) is assigned when the second alternative is preferred to the first. The value of 1 is always assigned when comparing an alternative with itself.

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Slide 40

Analytic Hierarchy Process

Step 3: Develop a Normalized Matrix Divide each number in a column of the pairwise comparison matrix by its column sum. Step 4: Develop the Priority Vector Average each row of the normalized matrix. These row averages form the priority vector of alternative preferences with respect to the particular criterion. The values in this vector sum to 1.

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Slide 41

Analytic Hierarchy Process

Step 5: Calculate a Consistency Ratio The consistency of the subjective input in the pairwise comparison matrix can be measured by calculating a consistency ratio. A consistency ratio of less than .1 is good. For ratios which are greater than .1, the subjective input should be re-evaluated. re-

------- For each criterion, perform steps 2 through 5 -------

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Slide 42

**Analytic Hierarchy Process
**

Step 6: Develop a Priority Matrix After steps 2 through 5 has been performed for all criteria, the results of step 4 are summarized in a priority matrix by listing the decision alternatives horizontally and the criteria vertically. The column entries are the priority vectors for each criterion.

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Slide 43

Analytic Hierarchy Process

Step 7: Develop a Criteria Pairwise Development Matrix This is done in the same manner as that used to construct alternative pairwise comparison matrices by using subjective ratings (step 2). Similarly, normalize the matrix (step 3) and develop a criteria priority vector (step 4). Step 8: Develop an Overall Priority Vector Multiply the criteria priority vector (from step 7) by the priority matrix (from step 6).

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Slide 44

Determining the Consistency Ratio

Step 1: For each row of the pairwise comparison matrix, determine a weighted sum by summing the multiples of the entries by the priority of its corresponding (column) alternative. Step 2: For each row, divide its weighted sum by the priority of its corresponding (row) alternative. Step 3: Determine the average, Pmax, of the results of step 2.

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Slide 45

Determining the Consistency Ratio

Step 4: Compute the consistency index, CI, of the n alternatives by: CI = (Pmax - n)/(n - 1). (P )/(n Step 5: Determine the random index, RI, as follows: Number of Alternative (n) (n 3 4 5 Random Index (RI) 0.58 0.90 1.12 Number of Alternative (n) (n 6 7 8 Random Index (RI) 1.24 1.32 1.41

**Step 6: Compute the consistency ratio: CR = CR/RI.
**

Slide 46

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**Example: Gill Glass
**

Designer Gill Glass must decide which of three manufacturers will develop his "signature´ toothbrushes. Three factors are important to Gill: (1) his costs; (2) reliability of the product; and, (3) delivery time of the orders. The three manufacturers are Cornell Industries, Brush Pik, and Picobuy. Cornell Industries will sell toothbrushes to Gill Glass for $100 per gross, Brush Pik for $80 per gross, and Picobuy for $144 per gross.

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Slide 47

Example: Gill Glass

Hierarchy for the Manufacturer Selection Problem Select the Best Toothbrush Manufacturer

Overall Goal

Criteria

Cost Cornell Brush Pik Picobuy

Reliability Cornell Brush Pik Picobuy

Delivery Time Cornell Brush Pik Picobuy

Decision Alternatives

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Slide 48

**Pairwise Comparison Matrix: Cost
**

Gill has decided that in terms of price, Brush Pik is moderately preferred to Cornell and very strongly preferred to Picobuy. In turn Cornell is strongly to very strongly preferred to Picobuy.

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Slide 49

Pairwise Comparison Matrix: Cost

Since Brush Pik is moderately preferred to Cornell, Cornell's entry in the Brush Pik row is 3 and Brush Pik's entry in the Cornell row is 1/3. Since Brush Pik is very strongly preferred to Picobuy, Picobuy's entry in the Brush Pik row is 7 and Brush Pik's entry in the Picobuy row is 1/7. Since Cornell is strongly to very strongly preferred to Picobuy, Picobuy's entry in the Cornell row is 6 and Cornell's entry in the Picobuy row is 1/6.

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Slide 50

**Pairwise Comparison Matrix: Cost
**

Cornell Brush Pik Picobuy Cornell Brush Pik Picobuy 1 3 1/6 1/3 1 1/7 6 7 1

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Slide 51

**Normalized Matrix: Cost
**

Divide each entry in the pairwise comparison matrix by its corresponding column sum. For example, for Cornell the column sum = 1 + 3 + 1/6 = 25/6. This gives: Cornell Brush Pik Picobuy Cornell Brush Pik Picobuy 6/25 18/25 1/25 7/31 21/31 3/31 6/14 7/14 1/14

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Slide 52

**Priority Vector: Cost
**

The priority vector is determined by averaging the row entries in the normalized matrix. Converting to decimals we get: Cornell: ( 6/25 + 7/31 + 6/14)/3 = .298 Brush Pik: (18/25 + 21/31 + 7/14)/3 = .632 Picobuy: ( 1/25 + 3/31 + 1/14)/3 = .069

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Slide 53

Checking Consistency

Multiply each column of the pairwise comparison matrix by its priority: 1 1/3 6 .298 3 + .632 1 + .069 7 1/6 1/7 1 .923 = 2.009 .209

Divide these number by their priorities to get: .923/.298 = 3.097 2.009/.632 = 3.179 .209/.069 = 3.029

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Slide 54

Checking Consistency

Average the above results to get Pmax. Pmax = (3.097 + 3.179 + 3.029)/3 = 3.102 Compute the consistence index, CI, for two terms. CI = (Pmax - n)/(n - 1) = (3.102 - 3)/2 = .051 (P )/(n

Compute the consistency ratio, CR, by CI/RI, where RI = .58 for 3 factors: CR = CI/RI = .051/.58 = .088 Since the consistency ratio, CR, is less than .10, this is well within the acceptable range for consistency.

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Slide 55

**Pairwise Comparison Matrix: Reliability
**

Gill Glass has determined that for reliability, reliability, Cornell is very strongly preferable to Brush Pik and equally preferable to Picobuy. Also, Picobuy is strongly preferable to Brush Pik.

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Slide 56

**Pairwise Comparison Matrix: Reliability
**

Cornell Brush Pik Picobuy Cornell Brush Pik Picobuy 1 1/7 1/2 7 1 1/5 2 5 1

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Slide 57

**Normalized Matrix: Reliability
**

Divide each entry in the pairwise comparison matrix by its corresponding column sum. For example, for Cornell the column sum = 1 + 1/7 + 1/2 = 23/14. This gives: Cornell Brush Pik Picobuy Cornell Brush Pik Picobuy 14/23 2/23 7/23 35/41 5/41 1/41 2/8 5/8 1/8

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Slide 58

**Priority Vector: Reliability
**

The priority vector is determined by averaging the row entries in the normalized matrix. Converting to decimals we get: Cornell: (14/23 + 35/41 + 2/8)/3 = .571 Brush Pik: ( 2/23 + 5/41 + 5/8)/3 = .278 Picobuy: ( 7/23 + 1/41 + 1/8)/3 = .151

Checking Consistency Gill Glass· responses to reliability could be checked for consistency in the same manner as was cost.

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Slide 59

**Pairwise Comparison Matrix: Delivery Time
**

Gill Glass has determined that for delivery time, time, Cornell is equally preferable to Picobuy. Both Cornell and Picobuy are very strongly to extremely preferable to Brush Pik.

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Slide 60

**Pairwise Comparison Matrix: Delivery Time
**

Cornell Brush Pik Picobuy Cornell Brush Pik Picobuy 1 1/8 1 8 1 8 1 1/8 1

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Slide 61

**Normalized Matrix: Delivery Time
**

Divide each entry in the pairwise comparison matrix by its corresponding column sum. Cornell Brush Pik Picobuy Cornell Brush Pik Picobuy 8/17 1/17 8/17 8/17 1/17 8/17 8/17 1/17 8/17

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Slide 62

**Priority Vector: Delivery Time
**

The priority vector is determined by averaging the row entries in the normalized matrix. Converting to decimals we get: Cornell: (8/17 + 8/17 + 8/17)/3 = .471 Brush Pik: (1/17 + 1/17 + 1/17)/3 = .059 Picobuy: (8/17 + 8/17 + 8/17)/3 = .471

Checking Consistency Gill Glass· responses to delivery time could be checked for consistency in the same manner as was cost.

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Slide 63

**Pairwise Comparison Matrix: Criteria
**

The accounting department has determined that in terms of criteria, cost is extremely preferable to criteria, delivery time and very strongly preferable to reliability, and that reliability is very strongly preferable to delivery time.

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Slide 64

**Pairwise Comparison Matrix: Criteria
**

Cost Cost Reliability Delivery 1 1/7 1/9 Reliability Delivery 7 1 1/7 9 7 1

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Slide 65

**Normalized Matrix: Criteria
**

Divide each entry in the pairwise comparison matrix by its corresponding column sum. Cost Reliability Delivery Cost Reliability Delivery 63/79 9/79 7/79 49/57 7/57 1/57 9/17 7/17 1/17

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Slide 66

**Priority Vector: Criteria
**

The priority vector is determined by averaging the row entries in the normalized matrix. Converting to decimals we get: Cost: Reliability: Delivery: (63/79 + 49/57 + 9/17)/3 = ( 9/79 + 7/57 + 7/17)/3 = ( 7/79 + 1/57 + 1/17)/3 = .729 .216 .055

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Slide 67

**Overall Priority Vector
**

The overall priorities are determined by multiplying the priority vector of the criteria by the priorities for each decision alternative for each objective. Priority Vector for Criteria [ .729 .216 .055 ] Cost Reliability Delivery Cornell Brush Pik Picobuy .298 .632 .069 .571 .278 .151 .471 .059 .471

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Slide 68

**Overall Priority Vector
**

Thus, the overall priority vector is: Cornell: (.729)(.298) + (.216)(.571) + (.055)(.471) = .366 Brush Pik: (.729)(.632) + (.216)(.278) + (.055)(.059) = .524 Picobuy: (.729)(.069) + (.216)(.151) + (.055)(.471) = .109 Brush Pik appears to be the overall recommendation.

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Slide 69

End of Chapter 15

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