Analytic Hierarchy Process

Multiple-criteria decision-making
Real world decision problems
multiple, diverse criteria qualitative as well as quantitative information

Comparing apples and oranges?

Spend on defence or agriculture? Open the refrigerator - apple or orange?

AHP
Information is decomposed into a hierarchy of alternatives and criteria Information is then synthesized to determine relative ranking of alternatives Both qualitative and quantitative information can be compared using informed judgements to derive weights and priorities

Example: Car Selection

Objective
Selecting a car

Criteria
Style, Reliability, Fuel-economy Cost?

Alternatives
Civic Coupe, Saturn Coupe, Ford Escort, Mazda Miata

Hierarchical tree
Selecting a New Car

Style
- Civic - Saturn - Escort - Miata

Reliability
- Civic - Saturn - Escort - Miata

Fuel Economy
- Civic - Saturn - Escort - Miata

Ranking of criteria
Weights? AHP
pair-wise relative importance
[1:Equal, 3:Moderate, 5:Strong, 7:Very strong, 9:Extreme]

Style Style Reliability Fuel Economy 1/1 2/1 1/3

Reliability 1/2 1/1 1/4

Fuel Economy 3/1 4/1 1/1

Ranking of priorities
Eigenvector [Ax = x]
Iterate 1. Take successive squared powers of matrix 2. Normalize the row sums Until difference between successive row sums is less than a pre-specified value

1 0.5 2 1 0.333 0.25

Row sums 12.75 22.3332 4.8333 39.9165

3 4 1.0

squared

3.0 1.75 8.0 5.3332 3.0 14.0 1.1666 0.6667 3.0

Normalized Row sums 0.3194 0.5595 0.1211 1.0

New iteration gives normalized row sum

0.3194 0.5595 0.1211 0.3196 0.5584 0.1220

0.3196 0.5584 0.1220

Difference is:

- 0.0002 = 0.0011 - 0.0009

Preference Style .3196 Reliability .5584 Fuel Economy .1220

Selecting a New Car 1.0

Style .3196

Reliability .5584

Fuel Economy .1220

Ranking alternatives
Style Civic Saturn Escort Miata

Civic 1/1
4/1 1/4 6/1

Saturn 1/4
1/1 1/4 4/1 Saturn 2/1 1/1 1/3

Escort Miata 4/1 1/6

4/1 1/1 5/1 1/4 1/5 1/1

Eigenvector .1160 .2470 .0600

.5770

Reliability Civic Civic 1/1 Saturn Escort 1/2 1/5

Escort Miata 5/1 1/1 3/1 1/1 2/1 1/4

.3790
.2900 .0740 .2570

Miata

1/1

1/2

4/1

1/1

Miles/gallon

Normalized

Fuel Economy (quantitative information)

Civic Saturn Escort Miata

34 27 24 28 113

.3010 .2390 .2120 .2480 1.0

Selecting a New Car 1.0

Style .3196

Reliability .5584

Fuel Economy .1220

- Civic .1160 - Saturn .2470 - Escort .0600 - Miata .5770

- Civic - Saturn - Escort - Miata

.3790 .2900 .0740 .2570

- Civic - Saturn - Escort - Miata

.3010 .2390 .2120 .2480

Ranking of alternatives
Style Reliability Fuel Economy
Civic Saturn .1160 .2470 .0600 .5770 .3790 .3010 .2900 .2570 .2390 .2480 * .0740 .2120 .3196 .5584 .1220 = .3060 .2720 .0940 .3280

Escort Miata

Handling Costs
Dangers of including Cost as another criterion
political, emotional responses?

Separate Benefits and Costs hierarchical trees Costs vs. Benefits evaluation
Alternative with best benefits/costs ratio

Cost vs. Benefits

Cost
Normalized Cost Cost/Benefits Ratio

MIATA CIVIC SATURN ESCORT

$18K $12K $15K $9K

.333 .222 .2778 .1667

.9840 1.3771 .9791 .5639

Complex decisions
Many levels of criteria and sub-criteria

 Application areas
strategic planning resource allocation source selection, program selection business policy etc., etc., etc..

AHP software (ExpertChoice)

computations sensitivity analysis graphs, tables

Group AHP