AHP Case Study 1

Optimal selection of location for Taiwanese hospitals to ensure a competitive advantage by using the analytic hierarchy process and sensitivity analysis

Outline
1. 2. 3. 4. 5. Introduction Literature review AHP methodology Case implementation Selecting the optimal location of hospitals to ensure a competitive advantage 6. Conclusions

Introduction
Implementation of the National Health Insurance scheme in Taiwan since 1995 has intensified competition in the local medical sector. Given elevated living standards islandwide, Taiwanese residents have become more health conscious and attach increasing importance to quality healthcare.
Heightened consumer demand in the quality and scope of medical services.

Introduction
The medical service sector has improved its organizational structure and encouraged hospitals to establish management practices that would increase their competitiveness. In such an intensely competitive environment, selecting the optimal location of hospitals to be established is of priority concern.

Introduction
In considering where to select a location, besides legislation restrictions, policymakers and business groups seldom consider how selecting the optimal location during the decision-making process could possibly affect its competitiveness.

Introduction
Health plan of 1984 .. & Aging -> more new hospitals ->fierce competition in medical service sector->impact of wrong location decision Selecting the optimal location for a hospital in terms of competitiveness involves the various hospital types in Taiwan, devising appropriate evaluation criteria and categorizing hospitals according to those evaluation criteria.

Introduction
Despite the considerable attention paid to selecting an optimal location for medical care facilities, establishing a hospital must strictly comply with governmental regulations, often causing decision makers to overlook the importance of selecting an optimal location.

Introduction
This study adopts the renowned diamond model introduced in Porters The Competitive Advantage of Nations (1990) that influences how competitive advantages, especially with respect to developing and evaluating the objectives of optimal location selection, are related in order to devise a standardized operational procedure.

Introduction
Besides a literature review and interviews with experts, this study also adopts the modified Delphi method, the analytic hierarchy process (AHP) and the sensitivity analysis to develop an evaluation method for selecting the optimal location of a regional hospital in Taiwan to determine its effectiveness.

Introduction
The proposed evaluation criterion provides a valuable reference for hospital administrators and academic in establishing a standardized means of selecting the optimal location for new medical care facilities.

Literature review
Porters diamond model Porters diamond model comprises six elements; four country-specific determinants (i.e. Factor conditions, Demand conditions, Firm strategy, structure and rivalry and Related and supporting industries) and two external variables, (i.e. chance and government).

Literature review
Location theory Weber (1909) proposed the position problems of a factory. Early location theory focused mainly on the production of raw materials and selling to markets in order to determine a factorys optimal position by minimizing transportation costs.

Literature review
Plant location research can be categorized into three perspectives such as: 1. Prescriptive, i.e. how to make plant-locationrelated decisions. 2. Nation-based, i.e., what a nation should do to attract overseas firms to locate domestically 3. Customer-based business, i.e. what criteria are adopted to make plant-location-related decisions

AHP Methodology
Skipped. Please refer to the original paper:
Wu, C.-R., Lin, C.-T., & Chen, H.-C. (2007). Optimal selection of location for Taiwanese hospitals to ensure competitive advantage by using the analytic hierarchy process and sensitivity analysis. Building and Environment 42, 1431-1444.

Case implementation
An AHP-based evaluation model can be developed for selecting the optimal location of hospitals to ensure a competitive advantage via the following steps:

Step 1: Define the evaluative criteria for selecting the optimal location of hospitals to ensure a competitive advantage.

Case implementation
Step 2: Establish a hierarchical structure. On the basis of the modified Delphi method, acquire important indicators into a hierarchy of interrelated decision elements, including goal, criteria, sub-criteria and alternatives.

Case implementation
Step 3: Establish the pair-wise comparison matrix. Each decision maker makes a pair-wise comparison of the decision elements and assigns them relative scores.

Step 4: Calculate the eigenvalue and eigenvector of each pair-wise comparison matrix.

Case implementation
Step 5: Test the consistency of each comparison matrix. Step 6: Aggregate the related scores provided by all decision makers using the geometric mean method, and then estimate the relative weights of the relative weights of the weight of the elements of each level.

Case implementation
Step 7: Combine the relative weights of the elements of each level to select the optimal location for hospitals to ensure a competitive advantage.

Step 8: Sensitivity analysis of three location selection areas under six criteria.

Case implementation
According to governments data, among these three geographical position, Taiping City is the biggest land area. The most of population number is in Dali City. The east district of Taichung City was economically developed and metropolis lively area. So, the selective regions for establishing hospital can be considered East district of Taichung City, Taiping City, and Dali City.

Case implementation

Selecting the optimal location of hospitals to ensure a competitive advantage

Step 1: Define the evaluative criteria and subcriteria used to select the optimal location of hospitals to ensure a competitive advantage.
The modified Delphi method is applied to define the evaluation criteria and sub-criteria. Murry and Hammons (1995) suggested that the modified Delphi method must summarize expert opinions on a range from 10 to 30. Seventeen hospital administrators and academics are then issued a preliminary questionnaire in which six evaluation criteria and 18 evaluation subcriteria are incorporated.

Selecting the optimal location of hospitals to ensure a competitive advantage

1. Factor conditions
(1) Capital: for building a hospital capital is required. (2) Labor: demand for hospital personnel, including physicians, pharmacists, healthcare personnel, dieticians, registered professional nurses, medical equipment technicians, medical care talent, as well as the quality and quantity of specialized talented individuals. (3) Land: how the land obtained will affect the cost; the plan as to how the land is used; and the appropriate disposition to avoid a situation in which land is unavailable when hospital expansion occurs in the future.

Selecting the optimal location of hospitals to ensure a competitive advantage

2. Demand
(1) Population number: the demand for medical services varies according to the local population. For instance, the demand for medical services is greater in metropolitan areas than in rural areas. (2) Population density: hospital scale and rank (district hospital, regional hospital and medical center) must correspond to the population density of the region, such as Taipei with a highly dense population. (3) Population age distribution: type of illness of hospital patients (acute, chronic, faculty or synthesis) must correspond to the distribution of population age. For instance, ex, the area with low ratio of old age population suits to set up the women and children hospital.

Selecting the optimal location of hospitals to ensure a competitive advantage

3. Firm strategy, structure and rivalry
(1) Management objective: hospital administrators establish a mission for the hospital to continue management practices. (2) Rank of competing: medical centers, regional hospitals and district hospitals for both Western and Chinese medicine, depending on their number and scale, affect how hospitals rank in position. (3) Policymakers attitude: individuals include the board of directors (administrators), consultants (including hospital management and financial personnel) and other related professionals such as architects have opinions towards managements style, such as an authoritative or a benevolent one.

Selecting the optimal location of hospitals to ensure a competitive advantage

4. Related and supporting industries
(1) The medicine practice and the pharmaceutical sector: the medicine practice includes biochemistry technology, cultivation of medical personnel and related industrial development. The pharmaceutical sector includes medical instrumentation, pharmaceuticals and medicinal preparation, medicinal cosmetics and related industrial development. (2) Hospital administration sector: this area includes management consultants, the information technology industry, material flow and related industrial development. (3) The healthcare sector: this area involves sustaining community health, home caregivers, long-term care, residential caregivers, the insurance sector and related industrial development.

Selecting the optimal location of hospitals to ensure a competitive advantage

5. Government
(1) Qualifications of the hospitals establishment and the regulations of the established standard: this area includes establishment of the hospital. After health authorities approve the hospital, the construction license can be applied for, along with related governing laws complied with. (2) Efforts to promote a medical network: in order to promote the medical resources balanced development, the division medical service region, and establishes the graduation medical service formulation. For example, lacking the regions to the medical resources and rewarding the folk to establish medical organizations. (3) Promulgating tasks that require a hospitals assessment: to strengthen the business management of hospitals and guarantee the quality of medical service, establishing a graded medical system will influence whether individuals seek a physician.

Selecting the optimal location of hospitals to ensure a competitive advantage

6. Chance
(1) Violent change in market demand: an increasing population in this region has increased both hospital bed capacity and the number of illnesses, e.g., SARS, subsequently creating a dramatic fluctuation in the demand for the local medical market. (2) Dramatic fluctuations in production costs: this includes the global rise in the price of steel and iron or events such as an energy crisis. (3) Significant changes in the financial market and exchange rate: fluctuations in the debt credit interest rate of banks or the influence of global currency values incur changes in the cost of medical instrumentation and pharmaceuticals.

Selecting the optimal location of hospitals to ensure a competitive advantage

Step 2: Establish a hierarchical structure

Selecting the optimal location of hospitals to ensure a competitive advantage

Step 3: Establish the pair-wise comparison matrix
Purposive sampling is applied to sample 13 respondents from various hospital administrators and academics. The weights of level 2 criteria and level 3 sub-criteria are then determined for a sample group of 13 individuals matching the above characteristics with each respondent, making a pair-wise comparison of the decision elements and assigning them relative scores. The relative scores provided by 13 experts are aggregated using the geometric mean method.

Selecting the optimal location of hospitals to ensure a competitive advantage

Table . Aggregate pair-wise comparison matrix for criteria of level 2
Goal Factor Demand Firm strategy 0.408 0.907 1.000 Related and supporting industries 3.706 4.696 4.318 Government Chance weight

Factor Demand Firm strategy Related and supporting industries Government Chance

1.000 2.632 2.453

0.380 1.000 1.102

0.318 0.608 0.682

2.266 3.061 2.985

0.121 0.223 0.227

0.270 3.148 0.441

0.213 1.645 0.327

0.232 1.466 0.335

1.000 4.099 3.275

0.2444 1.000 0.296

0.305 3.378 1.000

0.046 0.296 0.086

max 6.211571; CI=0.042314; RI=1.24; CR=0.034124 0.1

Selecting the optimal location of hospitals to ensure a competitive advantage

Step 4 : Calculate the eigenvalue and eigenvector Step 5 : Results of the consistency test and the CR of the comparison matrix from each 13 experts are all 0.1, indicating consistency.

Selecting the optimal location of hospitals to ensure a competitive advantage

Factor Capital Labor Land Capital 1.000 0.442 0.707 Labor 2.261 1.000 1.704 Land 1.414 0.587 1.000 weight 0.464 0.201 0.335

max 3.000449332; CI=0.000224666; RI=0.58; CR=0.000387355 0.1

max 6.211571; CI=0.042314; RI=1.24; CR=0.034124 0.1

Selecting the optimal location of hospitals to ensure a competitive advantage

Eigenvalue and CR Factor max=3.00044; CI=0.00022; RI=0.58 CR=0.0003870.1 max=3.00013; CI=0.000669; RI=0.58 CR=0.0011540.1 max=3.00116; CI=0.000584; RI=0.58 CR=0.0010073770.1 max=3.000972; CI=0.000486; RI=0.58 CR=0.0008380.1 max=3.00534; CI=0.00267; RI=0.58 CR=0.0046060.1 max=3.00128; CI=0.000643; RI=0.58 CR=0.0011080.1

Demand
Firm strategy Related and supporting industries

Government
Chance

Selecting the optimal location of hospitals to ensure a competitive advantage

Step 6 : Estimate the relative weights of the elements of each level.
Step 7 : Calculate the weights of overall levels Step 8:Sensitivity analysis of three location selection areas under six criteria

Sensitivity analysis
The performance graph displays how the alternatives perform with respect to the change in scenario of all parameters.

East district of Taichung city Taiping city Dali city

Sensitivity analysis
Performance sensitivity of alternatives when related and supporting industries (Rsi) is increased by 25%

Sensitivity analysis
Performance sensitivity of alternatives when Change (Ca) is increased by 30%

Sensitivity analysis
Performance sensitivity of alternatives when Government (Gv) is increased by 20%

Selecting the optimal location of hospitals to ensure a competitive advantage

Table. Eigen vectors and weights of three location selection areas under 18 sub-criteria
Criteria Sub-criteria Weights of subcriteria 0.464 0.201 0.335 East district of Taichung city 0.239 0.51 0.616 0.42 0.197 0.274 0.25 0.552 Taiping city Dali city

Capital Labor Factor Land Synthesis Population number Population density Demand Population age distribution synthesis

0.137 0.127 0.118 0.129 0.123 0.119

0.624 0.364 0.267 0.452 0.627 0.329

0.529

0.504

0.128

0.368

0.467

0.125

0.408

Selecting the optimal location of hospitals to ensure a competitive advantage

Criteria Sub-criteria
Management object Rank of competing hospitals The healthcare sector Weights of subcriteria 0.166 0.266 0.568 East district of Taichung city 0.24 0.55 0.57

Taiping city
0.129 0.124 0.11

Dali city
0.631 0.326 0.319

Firm strategy

Synthesis
The medicine practice and the pharmaceutical sector Hospital administration sector The healthcare sector Synthesis

0.51

0.117

0.373

0.42

0.548

0.113

0.338

Related and supporting industries

0.287

0.565

0.121

0.314

0.293

0.296
0.479

0.133
0.121

0.571
0.399

Selecting the optimal location of hospitals to ensure a competitive advantage

Criteria Sub-criteria Qualifications of the hospitals establishment and the regulations of the established standard Government Efforts to promote a medical network Promulgating tasks that require a hospitals assessment Synthesis Violent change in market demand Dramatic fluctuations in production costs Significant changes in the financial market and exchange rate Synthesis 0.282 0.403 Weights of subcriteria East district of Taichung city Taiping city Dali city 0.563 0.586 0.111 0.303

0.196

0.499

0.133

0.368

0.242

0.332 0.508 0.442 0.584

0.143 0.123 0.128 0.112

0.526 0.37 0.43 0.304

Chance

0.314

0.369 0.476

0.145 0.127

0.486 0.396

Conclusions
Demand conditions, firm strategy, structure and rivalry and government are high.
Goal Factor conditions The synthesis values 0.121

Demand conditions
Firm strategy, structure and rivalry

0.223
0.227 0.046 0.296 0.086

Related and supporting industries

Government Chance

Conclusions

Conclusions
Priorities of the three location selection areas are the locations of the East district of Taichung city (EDoTC), Dali City and Taiping City.