MM5009 Strategic Decision Making and Negotiation ANTHONY – 291 17 005

The Analytic Hierarchy Process (AHP) method is one of the complex decision making
method that was introduced by Prof. Thomas L. Saaty (1970s), that are based on mathematics
and psychology. In short, it is used to derive scales ratio from continuous and discrete paired
comparisons. AHP will help the user to have an effective solution of the complex problem
by simplify the problem into a hierarchy. After the problem has been transform into
hierarchy, each level of the hierarchy need to be given a subjective numeric score on how
important that level/variable is. After that, there will be some steps to have a final decision
for each method after doing a manual calculation or simply using EXPERT CHOICE software.
The problem need to be processed after any consideration that are diverse so the result will
be the best with our subjective weighted score.

Based on Thomas Saaty, there are 5 principles to apply AHP, decomposition of the
hierarchy, comparative judgements of the importance variables, weighting the variables and
check the consistency of the comparison (logical consistency), obtaining score for the
different options, and the last one is to perform the sensitivity analysis. The hierarchy
problem must be break down from the general attributes into the lowest level. In the process
of determine the purpose and hierarchy, it needs to be checked ether the hierarchies are
suitable for the problem. There are some criteria in determine the decision for the problem:
Complete, the criteria should be complete so it cover all the important aspect of the problem;
Operational, each criterion should have an impact on every decision; Not decisive, should
have a different meaning; the last one is Minimum, the criterion should be efficient.

Weighting the variables is used to determine the importance relativeness and need
to be compared by the other variables. There are 5 standard weighting value in AHP method,
1 for equally important, 3 is slightly more important, 5 is more important, 7 is strongly more
important, and 9 is absolutely more important. Note that the intermediate weightings are
allowed if the decision makers prefer, such as if the weighting is between more important
and strongly more important, the weighting score is 6. These weighting ratios need to be
placed in the matrix to make the calculation easier for each row or each column. Saaty
recommends that the inconsistency of the weighting ratios should only be a concern if the
ratios exceeds 0.1, it’s called a rule of thumb. After the weighting process, the hierarchy
need to be scored by the weighting ratios until the lowest level. This lowest level hierarchy
score indicates the best optimum solution for the defined problem. The last step of this AHP
method is to perform the sensitivity analysis. Some of the judgements after this process will
be rough and ready. The EXPERT CHOICE will be very helpful for carrying out the sensitivity
analysis. AHP Calculations can also be done by hand. If the calculation is done by hand, the
weighting ratios should be placed for both row and column side in the matrix. There is an
inconsistency index that need to be calculated using this formula:

Inconsistency index = (Average ratio from step 3 - n) / (n - 1)

After the inconsistency index have been calculated, there are also some random
indices for checking the consistency of a table which is 0; 0,58; 0,90; 1,12; 1,24; 1,32; 1,41;
1,45; 1,49 (sequential for n=1 to 10). This inconsistency should be below 0,1 so it can be
ignored.

The AHP is based on four axioms, the reciprocal axiom, the homogeneity axiom, the
synthesis axiom, and the expectation axiom. For the relative strength index of the AHP are
simplicity of pairing comparisons, redundancy allows consistency to be checked, and the last
one is versatility. Beside all of the explanation above, there are some contra/criticisms such
as: the conversion to numeric scale from verbal aspect, the problem of 1-to-9 scale,
meaningfulness of responses to questions, the new options can be reverse the rank of
existing alternatives, and number of comparisons that required may be a large number.