MULTICRITERIA DECISION PROBLEMS

Real Life Problems Exhibit:

Strong Pressures and Weakened Resources Complex Issues - Sometimes There are No Right Answers Vested Interests Conflicting Values

Most Decision Problems are Multicriteria

Maximize profits
Satisfy customer demands Maximize employee satisfaction Satisfy shareholders Minimize costs of production Satisfy government regulations Minimize taxes Maximize bonuses

Making a Decision

B is cheaper than A A is better than B

Which would you choose?

Basic Decision Problem

Criteria: Car: Alternatives: Low Cost > Operating Cost > Style A V B B V A B V A

Suppose the criteria are preferred in the order shown and the cars are preferred as shown for each criterion. Which car should be chosen? It is desirable to know the strengths of preferences for tradeoffs.

The Analytic Hierarchy Process (AHP)

Decision Making involves setting priorities and the AHP is the methodology for doing that. It is designed for situations in which ideas, feelings, and emotions affecting the decision process are quantified to provide a numeric scale for prioritizing the alternatives.

Hierarchic GOAL Thinking

CRITERIA

ALTERNATIVES

Relative Measurement The Process of Prioritization

In relative measurement a preference, judgment is expressed on each pair of elements with respect to a common property they share. In practice this means that a pair of elements in a level of the hierarchy are compared with respect to parent elements to which they relate in the level above.

Analytical Hierarchy Process



In many situations one may not be able to assign weights to the different decision factors. Therefore one must rely on a technique that will allow the estimation of the weights. One such process, The Analytical Hierarchy Process (AHP), involves pair wise comparisons between the various factors.

Analytical Hierarchy Process

(cont.)

The process is started by the decision maker creating the value tree associated with the problem. They proceed by carrying out pairwise comparisons, both between
Alternatives on each factor, and  Factors at a given node.


Application Case of AHP



Ms. X is about to graduate from college and is trying to determine which job offer to accept. She plans to choose between three offers by determining how well each offer meets the following criteria (objectives):  High starting salary  Quality of life in city where job is located  Interest of work  Nearness of job to family

Assumptions


Ms. X has hard time in prioritizing those criteria. In other words, she needs to find one way to decide the weights for those criteria. AHP provides such a function.

Determine the problem

What job offer will give Ms. X possibly highest satisfaction?  Structure the hierarchy by putting the top objective (satisfaction with job), criteria, and alternatives as follows.


Structure of the Problem

Satisfaction with a Job

Starting Salary

Life Quality

Interest

Nearness to Family

Job A

Job B

Job C

Structure of the Problem

Satisfaction with a Job

Starting Salary

Life Quality

Interest

Nearness to Family

Job A

Job B

Job C

The Principle of the AHP



The principle of the AHP relies on the pair-wise comparison. This comparison is carried out using a scale from 1 to 9 as follows:
        

1 Equally preferred 2 Equally to Moderately preferred 3 Moderately preferred 4 Moderately to Strongly preferred 5 Strongly preferred 6 Strongly to Very Strongly preferred 7 Very Strongly preferred 8 Very strongly to Extremely preferred 9 Extremely preferred

A pair-wise comparison matrix for the criteria level

        

1 Equally preferred 2 Equally to Moderately preferred 3 Moderately preferred 4 Moderately to Strongly preferred 5 Strongly preferred 6 Strongly to Very Strongly preferred 7 Very Strongly preferred 8 Very strongly to Extremely preferred 9 Extremely preferred

Satisfaction with a job

Salary

Quality

Interest

Nearness

Salary

Quality

1/5

1/2

1/2

Interest

1/2

Nearness

1/4

1/2

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A pair-wise comparison matrix for the criteria level

Satisfaction with a Job

Salary Quality Interest Nearness 1 1/ 5 1/ 2 1/ 4 5 1 2 2 2 1/ 2 1 1/ 2 4 1/ 2 2 1

Salary Quality Interest Nearness

Using the same steps to determine the score of each alternative on each criterion, pairwise matrix is constructed as follows:

SALARY Job A Job B Job C Job A A1 ! Job B Job C 1 1/ 2 1/ 4 2 1 1/ 2 4 2 1

AHP Case 2.


Ms. Y has received intimation from three Management institutions A, B, C to take admission. She specifies two main criteria location and academic reputation. Being the excellent student she is, she judges academic reputation to be five times as important as location. Using the symbols R and L to represent reputation and location, the associated comparison matrix is given as
R A= R L 1
1/5

L 5 1

Example Contd.


The relative weights of the alternatives of A,B and C within each of the L and R criteria, whose elements are based on Ms Xs judgment regarding the relative importance are as follows:
A A AL= B C 1 2 5 B C A AR= B C A 1 1/2 B 2 1 C 3 3/2 1

1/2 1/5 1 2 1/2 1

1/3 2/3

Specialization in PGDM at BIMTECH

A student of PGDM at BIMTECH has to take one specialization. In specialization some one has to achieve a total of 48 credits which are spread over 3rd , 4th and 5th trimester. The specialization offered at BIMTECH are Marketing, Finance, HR, Operations and IT. Two factors which are important to the student in his/her selection of specialization are relevance ( R ) and difficulty ( D ) to him/her. Determine an overall priority for the specialization selection process.
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Specialization in PGDM at BIMTECH(contd.)

 

Draw the hierarchy for this decision problem. Compute the priorities for each of the pair wise comparison matrices from  1 Equally preferred  2 Equally to Moderately preferred  3 Moderately preferred  4 Moderately to Strongly preferred  5 Strongly preferred  6 Strongly to Very Strongly preferred  7 Very Strongly preferred  8 Very strongly to Extremely preferred  9 Extremely preferred
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