MCDM Techniques Using R

Lecture 04
Analytic Hierarchy Process (AHP) – Part I

Dr. GAURAV DIXIT

DEPARTMENT OF MANAGEMENT STUDIES

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 ANALYTIC HIERARCHY PROCESS (AHP)

• AHP was developed by Saaty (1977, 1980)

– Particularly useful when unable to construct a utility function
– Four steps to obtain the ranking of alternatives
• Problem structuring
• Priority calculation
– Based on the pairwise comparisons
– A relative verbal appreciation is used instead of a numerical judgement
• Consistency check (optional but recommended)
• Sensitivity analysis (optional but recommended)

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 ANALYTIC HIERARCHY PROCESS (AHP)

• Problem structuring
– Main idea is divide and conquer
– Breakdown the problem
• By structuring according to a hierarchy: minimum three levels
• Top element is the goal of the decision problem
• Second level of the hierarchy represents the criteria
• lowest level represents the alternatives
• Additional levels representing the sub-criteria can be added

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 ANALYTIC HIERARCHY PROCESS (AHP)

• Example: Shop location problem

– A new sports shop in one of three different locations (alternatives)
• A shopping centre
• The city centre
• A new industrial area
– Criteria
• Visibility
• Competition
• Frequency
• Rental cost

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 ANALYTIC HIERARCHY PROCESS (AHP)
Location of a
Level 1 sports shop

Level 2 Visibility Competition Frequency Rental cost

Industrial Shopping
Level 3 area centre
City centre

Traditional representation of the hierarchy

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 ANALYTIC HIERARCHY PROCESS (AHP)

• In AHP, each lower level is prioritized

– According to its immediate upper level

– Appropriate question to ask with regard to prioritization depends on

• The context and
• Sometimes on the decision maker

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 ANALYTIC HIERARCHY PROCESS (AHP)

• Example: Shop location problem

– Prioritize criteria of level 2
• With regard to the goal
• An appropriate question would be:
– ‘Which criterion is most important for choosing the location of the sports shop and to what extent?’

– Prioritize alternatives in level 3

• With regard to each criterion in level 2
– ‘Which alternative is preferable to fulfil the given criterion and to what extent?’

– Total five different prioritizations are required

• One for criteria and four for alternatives

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 ANALYTIC HIERARCHY PROCESS (AHP)

• Priority calculation
– A priority is
• A score that ranks the importance of the alternative or criterion in the decision
problem
– Three types of priorities have to be calculated:
• Criteria priorities
• Alternative priorities
• Global priorities

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 ANALYTIC HIERARCHY PROCESS (AHP)

• Criteria priorities
– Importance of each criterion w.r.t the top goal
• Alternative priorities
– Importance of an alternative with respect to one specific criterion
• Global priorities
– Calculated using the criteria & alternative priorities
– Rank alternatives w.r.t. all criteria and consequently the overall goal

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 ANALYTIC HIERARCHY PROCESS (AHP)

• Same technique is used

– To calculate criteria & alternative priorities
• Pairwise comparisons
– Easier and more accurate to express a preference between only two elements than simultaneously
among all the elements
– Generally evaluated on the fundamental 1–9 scale
– In practice, other scales are also in use
• Conversion from verbal to numerical scale
– See table
• Comparisons are collected in a matrix
– See matrix for Shop location problem

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 ANALYTIC HIERARCHY PROCESS (AHP)
Table: The 1–9 fundamental scale
Degree of importance Definition
1 Equal importance
2 Weak
3 Moderate importance
4 Moderate plus
5 Strong importance
6 Strong plus
7 Very strong or demonstrated importance
8 Very, very strong
9 Extreme importance

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 ANALYTIC HIERARCHY PROCESS (AHP)
Visibility Competition Frequency Rental costs
Visibility 1 ¼ 1/5 2
Competition 4 1 ½ 1
Frequency 5 2 1 4
Rental costs ½ 1 ¼ 1

Comparison matrix for Shop location

problem

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 ANALYTIC HIERARCHY PROCESS (AHP)

• Comparison matrix
– All comparisons are positive
– Comparisons on the main diagonal are 1
• A criterion is compared with itself
– The matrix is reciprocal
• The upper triangle is the reverse of the lower triangle
– No. of necessary comparisons for each comparison matrix is
𝑛2 − 𝑛
2
Where n is the no. of elements

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 ANALYTIC HIERARCHY PROCESS (AHP)

• Comparison matrix
– Required no. of comparisons can be very high
• As the value of n increases
– Software will use these comparison matrices
• To calculate criteria & alternative priorities

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 ANALYTIC HIERARCHY PROCESS (AHP)

• Consistency check
– When several successive pairwise comparisons are done, they may
end up contradicting each other
• Vaguely defined problem,
• Lack of sufficient information (known as bounded rationality),
• Uncertain information, or
• Lack of concentration

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 Main References

• Tzeng, G. H., & Huang, J. J. (2011). Multiple attribute decision

making: methods and applications. CRC press.
• Ishizaka, A., & Nemery, P. (2013). Multi-criteria decision
analysis: methods and software. John Wiley & Sons.

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Thank You

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