Analytical Hierarchy Process (AHP)

"Analytical Hierarchy Process (AHP) is an approach to decision making that involves structuring multiple choice criteria into a hierarchy, assessing the relative importance of these criteria, comparing alternatives for each criterion, and determining an overall ranking of the alternatives"

AHP Contd
By organizing and assessing alternatives against a hierarchy of multifaceted objectives, AHP provides a proven, effective means to deal with complex decision making. Indeed, AHP allows a better, easier, and more efficient identification of selection criteria, their weighting and analysis. Thus, AHP reduces drastically the decision cycle.

AHP Procedure Build the Hierarchy

Very similar to hierarchical value structure

Goal on top (Fundamental Objective) Decompose into sub-goals (Means objectives) Further decomposition as necessary Identify criteria (attributes) to measure achievement of goals (attributes and objectives) Alternatives added to bottom Different from decision tree Alternatives show up in decision nodes Alternatives affected by uncertain events Alternatives connected to all criteria

Prescription of the analytical hierarchy process (AHP)

AHP is very useful when the decision-making process is complex, for instance, by being unstructured. Indeed, when the decision cycle involves taking into account a variety of multiple criteria which rating is based on a multiple-value choice, AHP splits the overall problem to solve into as many evaluations of lesser importance, while keeping at the same time their part in the global decision.

Building the Hierarchy

Example: Buying a car Affinity Diagram
Goal Buy the best Car
Handling Economy Power

General Criteria Secondary Criteria

Braking Dist

Turning Radius

Purchase Cost

Maint Cost

Gas Mileage

Time 0-60

Alternatives

Ford Taurus

Lexus

Saab 9000

Benefits of the analytical hierarchy process (AHP)

AHP helps capture both subjective and objective evaluation measures, providing a useful mechanism for checking the consistency of the evaluation measures and alternatives suggested by the team thus reducing bias in decision making. 2. AHP allows organizations to minimize common pitfalls of decision making process, such as lack of focus, planning, participation or ownership, which ultimately are costly distractions that can prevent teams from making the right choice.
1.

Steps of the analytical hierarchy process (AHP)

Decomposing The goal is to structure the problem into humanly-manageable sub-problems. To do so, iterating from top (the more general) to bottom (the more specific), split the problem, which is unstructured at this step, into sub-modules that will become sub-hierarchies. Navigating through the hierarchy from top to bottom, the AHP structure comprises goals (systematic branches and nodes), criteria (evaluation parameters) and alternative ratings (measuring the adequacy of the solution for the criterion). Each branch is then further divided into an appropriate level of detail. At the end, the iteration process transforms the unstructured problem into a manageable problem organized both vertically and horizontally under the form of a hierarchy of weighted criteria.

By increasing the number of criteria, the importance of each criterion is thus diluted, which is compensated by assigning a weight to each criterion.

Steps of the analytical hierarchy process (AHP)

Weighing

Assign a relative weight to each criterion, based on its importance within the node to which it belongs. The sum of all the criteria belonging to a common direct parent criterion in the same hierarchy level must equal 100% or 1. A global priority is computed that quantifies the relative importance of a criterion within the overall decision model.

Evaluating
Score alternatives and compare each one to others. Using AHP, a relative score for each alternative is assigned to each leaf within the hierarchy, then to the branch the leaf belongs to, and so on, up to the top of the hierarchy, where an overall score is computed. Selecting Compare alternatives and select the one that best fits the requirements.

APPLICATION OF AHP IN EVELUATION OF ERP

The hierarchical representation of the factors affecting a system is considered in the AHP. For ranking the alternatives, pair-wise comparisons among these factors are performed. For illustration, four ERP solutions are selected which have passed through a critical selection process and are economically feasible. The evaluation process is initially decomposed into a hierarchy of stated goals, criteria, sub-criteria, attributes and ERP alternatives while, for illustration, a simplified two-level problem is selected (Fig.24.7). This problem contains six criteria (level 3). Each sub-criterion may also be broken down into its attributes (level-4 in Fig.24.6). As one goes down the hierarchy, the elements become more and more specific. At a particular level of hierarchy the potency of influence for each factor on the next higher level of hierarchy is determined through a pair-wise comparison. In the present illustrative problem, as shown in Fig.24.7, for the evaluation of the ERP solution, the influences of six kinds of criteria; functionality, technical architecture, service and support execution ability, and vision of vendor are determined. Similarly, pair-wise comparison may be performed at each hierarchy for the sub-criteria and attributes, if they exist.

Application Contd
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1 -9 Scale
Intensity of Importance 1 3 5 7 9 2, 4, 6, 8 Reciprocals of above Rationals Definition Equal Importance Moderate Importance Strong Importance Very Strong Importance Extreme Importance
For compromises between the above In comparing elements i and j - if i is 3 compared to j - then j is 1/3 compared to i Force consistency Measured values available

Example - Pairwise Comparisons

Consider following criteria
Purchase Cost Maintenance Cost Gas Mileage Want to find weights on these criteria AHP compares everything two at a time

(1) Compare

Purchase Cost

to

Maintenance Cost

Which is more important? Say purchase cost By how much? Say moderately

Example - Pairwise Comparisons

(2) Compare Purchase Cost to Gas Mileage
Which is more important? Say purchase cost By how much? Say more important 5

(3) Compare

Maintenance Cost

to

Gas Mileage

Which is more important? Say maintenance cost By how much? Say more important

Example - Pairwise Comparisons

This set of comparisons gives the following matrix:
P
P M G 1

M
3

G
5

1/3
1/5

1
1/3

3
1

Ratings mean that P is 3 times more important than M and P is 5 times more important than G Whats wrong with this matrix? The ratings are inconsistent!