Multi Criteria Decision Making

Multi Criteria Decision Making

Prof. Chandan Bhar Department of Management Studies Indian School of Mines Dhanbad Definition of MCDM "Multi-Criteria Decision Making (MCDM) is the study of methods and procedures by which multiple conflicting criteria can be formally incorporated into the management planning process", as defined by the International Society on Multiple Criteria Decision Making MCDM is also referred as:

Multi-Criteria Decision Analysis (MCDA) Multi-Dimensions Decision-Making (MDDM) Multi-Attributes Decision Making (MADM)

MCDM supports decision makers faced with numerous and sometimes conflicting evaluations. MCDA aims at highlighting these conflicts and deriving a way to come to a compromise in a transparent process. Measurements in MCDA are derived or interpreted subjectively as indicators of the strength of various preferences.
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Multi Criteria Decision Making

Preferences differ from decision maker to decision maker, so the outcome depends on who is making the decision and what their goals and preferences are. Many MCDA / MCDM methods are in use today. Different methods may yield different results for exactly same problem. When exactly same problem data are used with different MCDA / MCDM methods, such methods may recommend different solutions even for very simple problems (i.e., ones with very few alternatives and criteria). This raises the fundamental issues of how to evaluate and compare various MCDA / MCDM methods. Choosing the best MCDA / MCDM method is itself a multi-criteria decision making problem, in which the alternatives are the methods themselves and the decision criteria are the various evaluative ways for comparing them. The choice of model depends on the problem at hand and may be to some extent dependent on which model the decision maker is most comfortable with. Some of the MCDA methods are:

Analytic hierarchy process (AHP) Analytic network process (ANP) Data envelopment analysis Goal programming Multi-attribute utility theory (MAUT) Multi-attribute value theory (MAVT)
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Multi Criteria Decision Making

Goal Programming In todays business environment, profit maximization or cost minimization is not always the only objective of a firm. Often maximizing total profit is just one of the several goals, There exists other contradictory objectives like maximizing market share, maintaining full employment, providing quality ecological management, minimizing noise level in the neighborhood, and meeting other non-economic goals. Mathematical programming techniques like linear and integer programming have shortcomings that their objective function is measured in one dimension only. An important technique that has been developed to supplement linear programming is called goal programming. Technique is capable of handling decision problem involving multiple goals. In typical decision making situation, goal set by management can be achieved only at the expense of other goals. It is necessary to establish a hierarchy of importance among these goals so that lower priority goals can be tackled only after higher priority goals are satisfied. Since it is not always possible to achieve every goal to the extent the decision maker wants, goal programming attempts to reach a satisfactory level of multiple objectives. This of course differs from linear programming, which tries to find out the best possible outcome for a single outcome. Goal programming differs from linear programming. Objective function is the main difference.
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Multi Criteria Decision Making

Instead of trying to maximize or minimize objective function directly, with goal programming we try to minimise the deviations between set goals within the given set of constraints. In the linear programming simplex approach, such deviations are called slack variables. In goal programming, such slack terms are either positive or negative, and not only they are real variables but also they are the only terms in the objective function. Objective is to minimize the values of these deviational variables. Example of Goal Programming An electric company produces two products: old-fashioned chandeliers and ceiling fans. Both the chandeliers and ceiling fans require a two-step production process involving wiring and assembly. It takes about 2 hours to wire each chandelier and 3 hours to wire a ceiling fan. Final assembly of the chandeliers and fans require 6 and 5 hours respectively. The production capacity is such that only 12 hours of wiring time and 30 hours of assembly time are available per week. If each chandelier produced earns a net profit of $7 and each ceiling fan earns $6, determine the optimum product mix for the company. Linear programming formulation of the problem: Maximize, Z= 7X + 6Y Subject to the constraints, 2X + 3Y 12 6X + 5Y 30 X 0, Y 0 Where, X = number of chandeliers to be produced Y = number of ceiling fans to be produced
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Multi Criteria Decision Making

Problem has a single goal, i.e., profit. Linear programming technique can be used to find optimal solution of the problem. But lets assume that management of the firm feels that maximizing profit is not a realistic goal and sets a profit level which would be satisfactory for the firm is $30 per week. We now have a goal programming problem in which we want to find the production mix that achieves the goal as closely as possible given the production time constraints. In this problem, we first define the deviational variables. di = underachievement of the profit target di+ = overachievement of the profit target Goal programming model for the above problem can be formulated as follows: Minimize under achievement and over achievement of profit target = di + di+ Subject to, 7X + 6Y + di - di+ = 30 (profit goal constraints) 2X + 3Y 6X + 5Y 12 (wiring hours constraint) 30 (assembly hours constraint)

X 0, Y 0, di 0, di+ 0 First constraint states that profit made 7X + 6Y plus any under achievement of profit minus any overachievement has to equal to the target $30. Problem is now ready for solution by goal programming.
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Multi Criteria Decision Making

If the values of deviational variables are found to be zero it indicates that the target profit of $30 is fully achieved and the value of the objective function is found to be zero. If the management of the firm is interested for minimization of under achievement of the target profit, then the formulation of the problem will be as follows. Minimize under achievement of profit target = di Subject to, 7X + 6Y + di - di+ = 30 (profit goal constraints) 2X + 3Y 6X + 5Y 12 (wiring hours constraint) 30 (assembly hours constraint)

X 0, Y 0, di 0, di+ 0 Underachievement of profit target is also a reasonable goal as the firm would probably not be upset by overachievement of profit target. In general, when all goals and constraints are identified in a problem, management should analyze each goal to find out if underachievement or overachievement of that goal is an acceptable solution. If overachievement is acceptable, the appropriate di+ is variable is eliminated from the objective function. Similarly, if underachievement is allowed, the corresponding di variable shall be dropped from the objective function. If the management wants to achieve a goal exactly, the corresponding di and di+ variables must appear in the objective function.

Multi Criteria Decision Making

Extension to Equally Important Multiple Goals If the management of the firm wants to achieve several goals and all the goals have equal priority. Goal 1: to earn as much profit above $30 as possible during the production period. Goal 2: to fully utilize the available wiring department hours Goal 3: to avoid overtime in assembly department Goal 4: to meet a contract requirement to produce at least 7 ceiling fans. The deviational variables can be defined as follows: d1 = underachievement of the profit target d1+ = overachievement of the profit target d2 = idle time in the wiring department (underachievement) d2+ = overtime in the wiring department (overachievement) d3 = idle time in the assembly department (underachievement) d3+ = overtime in the assembly department (overachievement) d4 = underachievement of the ceiling fan goal d4+ = overachievement of the ceiling fan goal As per the goals set by management, the following deviational variables shall be included in the objective function and the goal programming model will be as follows:

Multi Criteria Decision Making

Minimize, Total Deviation = d1 + d2 + d3+ + d4 Subject to, 7X + 6Y + d1 - d1+ = 30 (profit goal constraints) 2X + 3Y + d2 - d2+ = 12 (wiring hours constraint) 6X + 5Y + d3 - d3+ = 30 (assembly hours constraint) Y + d4 - d4+ = 7 (ceiling fan constraint) X 0, Y 0, d1 0 d1+ 0 d2 0 d2+ 0 d3 0 d3+ 0 d4 0 d4+ 0 Ranking Goals In real life situation, one goal will be more important than another, which in turn will be more important than a third. The idea is that goals can be ranked with respect to their importance in managements eyes. Lower order goals are considered only after the higher order goals are satisfied. Priorities (Pis) are assigned to each deviational variables with the ranking that P1 is the most important goal, P2 is the next most important, then P3 and so on.

Multi Criteria Decision Making

For the above problem, priorities set by the management are as follows: Goal Earn as much profit above $30 as possible Fully utilize available department hours wiring Priority P1 P2 P3 P4

Avoid overtime in assembly department Produce at least 7 ceiling fans.

Considering priority of goals, the goal programming problem is formulated as follows: Minimize, Total Deviation = P1d1 + P2d2 + P3d3+ + P4d4 Subject to, 7X + 6Y + d1 - d1+ = 30 (profit goal constraints) 2X + 3Y + d2 - d2+ = 12 (wiring hours constraint) 6X + 5Y + d3 - d3+ = 30 (assembly hours constraint) Y + d4 - d4+ = 7 (ceiling fan constraint) X 0, Y 0, d1 0 d1+ 0 d2 0 d2+ 0 d3 0 d3+ 0 d4 0 d4+ 0

Multi Criteria Decision Making

Solution of the Problem Problem can be solved using Goal Programming software. This problem has been solved by using Integer programming module of TORA software Goal programming problem has been converted to an integer programming problem. Solution of the problem is obtained as follows: No. of chandeliers to be produced (X) No. of ceiling fans to be produced (Y) d1 = 0 d1+ = 4 d2 = 0 d2+ = 2 d3 = 8 d3+ = 0 d4 = 0 d4+ = 5 Value of objective function (Total Deviation) = 0 =2 =2

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