MIS 463

Analytic Hierarchy Process

The Analytic Hierarchy Process (AHP)

Founded by Saaty in 1980. It is a popular and widely used method for multi-criteria decision making. Allows the use of qualitative, as well as quantitative criteria in evaluation. Wide range of applications exists:

Selecting a car for purchasing Deciding upon a place to visit for vacation Deciding upon an MBA program after graduation.

AHP-General Idea

Develop an hierarchy of decision criteria and define the alternative courses of actions. AHP algorithm is basically composed of two steps:
1. Determine the relative weights of the decision criteria 2. Determine the relative rankings (priorities) of alternatives

! Both qualitative and quantitative information can be compared by using informed judgments 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

Hierarchy tree
S e le c t in g a N ew C ar

S t y le

R e lia b ilit y

Fuel E conom y

Civic

Saturn

Escort

Miata

Alternative courses of action

5

Ranking of Criteria and Alternatives

Pairwise comparisons are made with the grades ranging from 1-9. 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.

These pairwise comparisons are carried out for all factors to be considered, usually not more than 7, and the matrix is completed.
6

Ranking Scale for Criteria and Alternatives

Ranking of criteria
Style Style Reliability Fuel Economy 1 2 1/3 Reliability 1/2 1 1/4 Fuel Economy 3 4 1

Ranking of priorities

Consider [Ax = maxx] where

A is the comparison matrix of size nn, for n criteria, also called the priority matrix. x is the Eigenvector of size n1, also called the priority vector. maxis the Eigenvalue, max > n.

To find the ranking of priorities, namely the Eigen Vector X:

1) Normalize the column entries by dividing each entry by the sum of the column. 2) Take the overall row averages.

A=

1 0.5 3 2 1 4 0.33 0.25 1.0 8.00

Normalized Column Sums

0.30 0.60 0.10 1.00

0.29 0.57 0.14 1.00

0.38 0.50 0.13 1.00

Row averages

X=

0.30 0.60 0.10

Column sums 3.33 1.75

Priority vector

Criteria weights Style .30 Reliability .60 Fuel Economy .10

Selecting a New Car 1.00

Style 0.30

Reliability 0.60

Fuel Economy 0.10

10

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. If the CR is greater than 0.1 the judgments are untrustworthy because they are too close for comfort to randomness and the exercise is valueless or must be repeated.
11

Calculation of Consistency Ratio

The next stage is to calculate max so as to lead to the Consistency Index and the Consistency Ratio. Consider [Ax = max x] where x is the Eigenvector.
A x Ax x = max

1 0.5 2 1 0.333 0.25

3 4 1.0

0.30 0.60 0.10

0.90 = 1.60 0.35

0.30 0.60 0.10

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

Consistency

index , CI is found by

CI=(max-n)/(n-1)=(3.06-3)/(3-1)= 0.03
12

Consistency Ratio

The final step is to calculate the Consistency Ratio, CR by using the table below, derived from Saatys book. The upper row is the order of the random matrix, and the lower row is the corresponding index of consistency for random judgments.

Each of the numbers in this table is the average of CIs derived from a sample of randomly selected reciprocal matrices of AHP method. An inconsistency of 10% or less implies that the adjustment is small as compared to the actual values of the eigenvector entries. A CR as high as, say, 90% would mean that the pairwise judgments are just about random and are completely untrustworthy! In this case, comparisons should be repeated. In the above example: CR=CI/0.58=0.03/0.58=0.05 0.05<0.1, so the evaluations are consistent!
13

Ranking alternatives
Style

Civic
Saturn Escort

Civic 1 4 1/4

Saturn 1/4 1 1/4

Escort Miata 4 1/6 4 1 1/4 1/5

Priority vector

Miata

4
Saturn 2 1 1/3 1/2

0.13 0.24 0.07 0.56

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

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

0.38 0.29 0.07 0.26

14

Ranking alternatives
Miles/gallon Normalized

Fuel Economy

Civic Saturn

34 27

.30 .24

Escort Miata

24 28 113

.21 .25 1.0

15

Selecting a New Car 1.00

Style 0.30 Civic Saturn Escort Miata 0.13 0.24 0.07 0.56

Reliability 0.60 Civic Saturn Escort Miata 0.38 0.29 0.07 0.26

Fuel Economy 0.10 Civic 0.30 Saturn 0.24 Escort 0.21 Miata 0.25

16

Ranking of alternatives

Civic

.13 .24 .07 .56

.38 .30 .29 .24 .07 .21 .26 .25

x

.30 .60 .10

Saturn Escort Miata

.30 .27 = .08 .35

Priority matrix

Criteria Weights

17

Including Cost as a Decision Criteria

Adding cost as a a new criterion is very difficult in AHP. A new column and a new row will be added in the evaluation matrix. However, whole evaluation should be repeated since addition of a new criterion might affect the relative importance of other criteria as well! Instead one may think of normalizing the costs directly and calculate the cost/benefit ratio for comparing alternatives!

Cost

Normalized Cost

Benefits

Cost/Benefits Ratio

CIVIC SATURN ESCORT MIATA

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

.22 .28 .17 .33

.30 .27 .08 .35

0.73 1.03 2.13 0.92

18

Methods for including cost criterion

Use graphical representations to make trade-offs.

Miata Civic Saturn Escort

Calculate cost/benefit ratios Use linear programming Use seperate benefit and cost trees and then combine the results
19

Complex decisions
Many levels of criteria and sub-criteria exists for complex problems.

20

AHP Software:
Professional commercial software Expert Choice developed by Expert Choice Inc. is available which simplifies the implementation of the AHPs steps and automates many of its computations

computations sensitivity analysis graphs, tables

21

Ex 2: Evaluation of Job Offers

Ex: 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, job content, and long-term prospects. Step 1: Decide upon the relative importance of the selection criteria: Location Salary Content Long-term

Location Salary Content Long-term

1/5

1/3

1/2

5
3 2

1
1/2 1/2

2
1 1/3

4
3 1
22

Priority Vectors:
1) Normalize the column entries by dividing each entry by the sum of the column. 2) Take the overall row averages

Location Salary Content Long-term

Average

Location Salary Content

0.091
0.455 0.273

0.102
0.513 0.256

0.091
0.545 0.273

0.059
0.471 0.353

0.086 0.496

0.289
0.130
+ 1

Long-term
+

0.182
1

0.128
1

0.091
1

0.118
1

23

Example 2: Evaluation of Job Offers

Step 2: Evaluate alternatives w.r.t. each criteria Location Scores Relative Location Scores

A A B C D 0.161 0.322 0.484 0.032

B 0.137 0.275 0.549 0.040

C 0.171 0.257 0.514 0.057

D 0.227 0.312 0.409 0.045

Avg. 0.174 0.293 0.489 0.044

A B C D

1 2 3 1/5

1/2 1 2 1/7

1/3 1/2 1 1/9

5 7 9 1

24

Example 2: Calculation of Relative Scores

Relative Scores for Each Criteria
Location Salary Content Long-Term

Relative weights for each criteria x 0.086 0.496 0.289 0.130 =

Relative scores for each alternative 0.164 0.256 0.335 0.238

A B C D

0.174 0.293 0.489 0.044

0.050 0.444 0.312 0.194

0.210 0.038 0.354 0.398

0.510 0.012 0.290 0.188

25

More about AHP: Pros and Cons

It allows multi criteria decision making.

Pros Cons

It is applicable when it is difficult to formulate criteria evaluations, i.e., it allows qualitative evaluation as well as quantitative evaluation. It is applicable for group decision making environments There are hidden assumptions like consistency. Repeating evaluations is cumbersome. Difficult to use when the number of criteria or alternatives is high, i.e., more than 7. Difficult to add a new criterion or alternative Difficult to take out an existing criterion or alternative, since the best alternative might differ if the worst one is excluded.
26

Users should be trained to use AHP methodology. Use GDSS Use constraints to eliminate some alternatives Use cost/benefit ratio if applicable

Group Decision Making

The AHP allows group decision making, where group members can use their experience, values and knowledge to break down a problem into a hierarchy and solve. Doing so provides: Understand the conflicting ideas in the organization and try to reach a consensus. Minimize dominance by a strong member of the group. Members of the group may vote for the criteria to form the AHP tree. (Overall priorities are determined by the weighted averages of the priorities obtained from members of the group.) However; The GDSS does not replace all the requirements for group decision making. Open meetings with the involvement of all members are still an asset.

27

Example 3: AHP in project management

Prequalification of contractors aims at the elimination of incompetent contractors from the bidding process.
Contractor A Experience Contractor B Contractor C Contractor D Contractor E 15 years experience No similar project 5 years experience 7 years experience Two similar projects One similar project 8 years experience 10 years experience No similar project Two similar projects Special procurement 1 international experience project Financial stability $7 M assets High growth rate No liability $10 M assets $5.5 M liabilities Part of a group of companies $14 M assets $6 M liabilities $11 M assets $4 M liabilities Good relation with banks $6 M assets $1.5 M liabilities

It is the choice of the decision maker to eliminate contractor E from the AHP evalution since it is not feasible at all !!

Quality performance

Good organization Average organization Good organization Good organization C.M. personnel C.M. personnel C.M. team Good reputation

Bad organization Unethical techniques One project terminated Average quality

Good reputation
Many certicates Safety program Manpower resources

Two delayed projects Government award Many certicates

Safety program Good reputation QA/QC program Cost raised in some projects

150 labourers
10 special skilled labourers

100 labourers
200 by subcontract Availability in peaks

120 labourers

90 labourers

40 labourers
260 by subcontract

Good skilled labors 130 by subcontract 25 special skilled labourers

28

Example 3 (cont.d)
Contractor A Contractor B Contractor C

Equipment resources

4 mixer machines 6 mixer machines 1 batching plant 1 excavator 15 others 1 excavator 1 bulldozer 20 others 15,000 sf steel formwork

Contractor D 4 mixer machines

Contractor E 2 mixer machines 10 others 2000 sf steel formwork 6000 sf wooden formwork

2 concrete 1 excavator transferring trucks 2 mixer machines 9 others 1 excavator 1 bulldozer

Current works 1 big project ending load

2 projects in mid (1 medium +1 small)

16 others 17,000 sf steel formwork 2 projects ending 1 medium project (1 big+ 1 medium) started

2 big projects ending

2 projects ending 1 medium (1 big + 1 medium) project in mid

2 small projects started 3 projects ending (2 small + 1 medium)

29

Hierarchy Tree
Selecting the most suitable contractor

Experience

Financial Stability

Quality Performence

Manpower Resources

Equipment Resources

Current workload

Contractor A

Contractor B

Contractor C

Contractor D

Contractor E

30

Example 3: AHP in project management

Step 1: Evaluation of the weights of the criteria

Step 2: a) Pairwise comparison matrix for experience

31

Example 3: AHP in project management

Calculation of priority vector:

Probably Contractor-E should have been eliminated. It appears to be the worst.

Note that a DSS supports the decision maker, it can not replace him/her. Thus, an AHP Based DSS should allow the decision maker to make sensitivity analysis of his judgements on the overall priorities !

32

Multi Criteria Decision Making Models: PROMETHEE

One of the most efficient and easiest MCDM methodologies.

Developed by Jean-Pierre Brans and Bertrand Mareschal at the ULB and VUB universities since 1982
Considers a set of criteria and alternatives. Criteria weights are determined that indicate the relative importance Utilizes a function reflecting the degree of advantage of one alternative over the other, along with the degree of disadvantage that the same alternative has with respect to the other alternative. In scaling, there are six options allowing the user to express meaningful differences by minimum gaps between observations. When type I is used, only relative advantage matters; type 6 is based on standardization with respect to normal distribution.

33

Ex: Media Selection for a Bicycle Co.

A bicycle manufacturing company is intending to advertise its products.
Six marketing actions are considered: Advertising in the international newspaper, News; in the newspaper Herald; by mean of advertising boards in large cities; of a personal mailing; by TV spots on channels CMM or NCB.

Units: Cost ($ 1,000), Target (10,000 people), Duration (days), Efficiency (0-100) Manpower (# people involved in the company)
34

Partial anf full rankings with Promethee I and II

35

Ranking of the alternatives can be obtained for the selected weights

36

Additional constraints

It is often necessary that several alternatives have to be selected subject to a set of goals. In this case an LP can be constructed with binary decision variables, which gives the selection of r actions, among n alternatives.
Let xi=1 if media i is selected and 0 otherwise, i=1,2,...,6. (Ai) are the relative weight of media i, i=1,2,...,6. Max (A1) x1 + + (A6) x6
Subject to x1 + x2 + x3 + x4 + x5 + x6 2 (at least 2 media should be selected) x1 + x2 + x3 + x4 + x5 + x6 4 (at most 4 media should be selected.) x1 + x2 = 1 (choose exactly one newspaper) x5 + x6 = 1 ((choose exactly 1 TV channel) 625 x1 + 550 x2 + 250 x3 + 150 x4 + 175 x5 + 750 x6 1200 (min. expected return) - 60 x1 - 30 x2 + 40 x3 + 92 x4 + 52 x5 + 80 x6 0 (cost of advertising in newspapers should be less than 50% of total costs)
37

References
Al Harbi K.M.A.S. (1999), Application of AHP in Project Management, International Journal of Project Management, 19, 19-27. Haas R., Meixner, O., (2009) An Illustrated Guide to the Analytic Hierarchy Process, Lecture Notes, Institute of Marketing & Innovation, University of Natural Resources, retrieved from http://www.boku.ac.at/mi/ on October 2009. Saaty, T.L., Vargas, L.G., (2001), Models, Methods, Concepts & Applications of the Analytic Hierarchy Process, Kluwers Academic Publishers, Boston, USA. Brans, J.P., Mareschal, B., (2010) How to Decide with Promethee, retrieved from http://www.visualdecision.com on October 2010.

38