AHP: Exercises

Question 1
An individual was interested in determining which of two stocks to invest in, Central Computing
Company (CCC) or Software Research, Inc. (SRI). The criteria thought to be most relevant in
making the decision are the potential yield of the stock and the risk associated with the
investment. The pairwise comparison matrixes for this problem are

Criterion Yield Risk

Yield Risk CCC SRI CCC SRI
Yield 1 2 CCC 1 3 CCC 1 1/2
Risk 1/2 1 SRI 1/3 1 SRI 2 1

(i) Compute the priorities for each pairwise comparison matrix.

(ii) Determine the overall priority for the two investments, CCC and SRI. Which investment is
preferred based on yield and risk?

Question 2
The president of Pegasus Corporation is trying to decide which of three candidates (denoted as
candidates A, B, and C) to hire as the firm’s new vice president of Marketing. The primary
criteria the president is considering are each candidate’s leadership ability, interpersonal skills,
and administrative ability. After carefully considering their qualifications, the president used
AHP to create the following pairwise comparison matrices for the three candidates on the various
criteria:

Leadership ability Interpersonal skills Administrative ability

A B C A B C A B C
A 1 3 4 A 1 1/2 3 A 1 1/5 1/8
B 1/3 1 2 B 2 1 8 B 5 1 1/3
C 1/4 1/2 1 C 1/3 1/8 1 C 8 3 1

Next, the president of Pegasus considered the relative importance of the three criteria. This
resulted in the following pairwise comparison matrix:

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AHP: Exercises

(i) Use AHP to compute scores for each candidate on each of the three criteria, andto
compute weights for each of the criteria.
(ii) Was the president consistent in making pairwise comparisons?
(iii) Compute the weighted average score for each candidate. Which candidateshould be
selected according to your results?

Question 3
XYZ Enterprises is trying to decide how it will invest its capital in three building projects. Only
three distinct projects are being considered now or in the future: P1, P2 and P3. P1 is single
family home development, P2 is townhouse development, and P3 is condominium development.

The criteria are as follows:

PRICE: the expected selling price per unit
SIZE: the number of units in each development
LOCATION: the quality of the location
SCHOOLS: the quality of the school system

XYZ has collected the following pair wise comparison information.

Criteria
Price Size Location Schools
Price 1.0 1.5 2.0 4.0
Size 1.0 2.0 2.0
Location 1.0 1.6
Schools 1.0

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AHP: Exercises

Price
P1 P2 P3
P1 1.0 4.0 3.0
P2 1.0 1.0
P3 1.0

Price
P1 P2 P3
P1 1.0 1/2 3.0
P2 1.0 3.0
P3 1.0

Price
P1 P2 P3
P1 1.0 1/4 1/4
P2 1.0 1/2
P3 1.0

Price
P1 P2 P3
P1 1.0 1/2 1/5
P2 1.0 1/3
P3 1.0

(i) List the three projects in rank order and state their overall weights.
(ii) Which pair wise comparison matrix is the most inconsistent?
(iii) Does your method of ranking determine how the capital is to be allocated among the
projects? Discuss.