Logistics Decision Analysis Methods

Analytic Hierarchy Process

Presented by Tsan-hwan Lin

E-mail: percy@ccms.nkfust.edu.tw

Motivation - 1

In our complex world system, we are forced to cope

with more problems than we have the resources to
handle.

What we need is not a more complicated way of thinking

but a framework that will enable us to think of complex
problems in a simple way.

The AHP provides such a framework that enables us to

make effective decisions on complex issues by
simplifying and expediting our natural decision-making
processes.

Motivation - 2

Humans are not often logical creatures.

Most of the time we base our judgments on hazy

impressions of reality and then use logic to
defend our conclusions.

The AHP organizes feelings, intuition, and logic

in a structured approach to decision making.

Motivation - 3

There are two fundamental approaches to

solving problems: the deductive approach
and the inductive ( or
systems) approach.

Basically, the deductive approach focuses on the

parts whereas the systems approach concentrates
on the workings of the whole.

The AHP combines these two approaches into

one integrated, logic framework.

Introduction - 1

The analytic hierarchy process (AHP) was developed

by Thomas L. Saaty.

Saaty, T.L., The Analytic Hierarchy Process, New York:

McGraw-Hill, 1980

The AHP is designed to solve complex problems

involving multiple criteria.

An advantage of the AHP is that it is designed to

handle situations in which the subjective judgments of
individuals constitute an important part of the decision
process.

Introduction - 2

Basically the AHP is a method of (1) breaking down a

complex, unstructured situation into its component
parts; (2) arranging these parts, or variables into a
hierarchic order; (3) assigning numerical values to
subjective judgments on the relative importance of
each variable; and (4) synthesizing the judgments to
determine which variables have the highest priority
and should be acted upon to influence the outcome of
the situation.

Introduction - 3

The process requires the decision maker to

provide judgments about the relative
importance of each criterion and then specify
a preference for each decision alternative on
each criterion.

The output of the AHP is a prioritized ranking

indicating the overall preference for each of
the decision alternatives.

Major Steps of AHP

1) To develop a graphical representation of the problem in terms of
the overall goal, the criteria, and the decision alternatives. (i.e.,
the hierarchy of the problem)
2) To specify his/her judgments about the relative importance of
each criterion in terms of its contribution to the achievement of
the overall goal.
3) To indicate a preference or priority for each decision alternative
in terms of how it contributes to each criterion.
4) Given the information on relative importance and preferences, a
mathematical process is used to synthesize the information
(including consistency checking) and provide a priority ranking
of all alternatives in terms of their overall preference.

Constructing Hierarchies

Hierarchies are a fundamental mind tool

Classification of hierarchies

Construction of hierarchies

Establishing Priorities

The need for priorities

Setting priorities

Synthesis

Consistency

Interdependence

Advantages of the AHP

The AHP provides a single,
easily understood, flexible
The AHP enables people to
model for a wide range of
refine their definition of a
Unity
unstructured
problems
problem and to improve their
The AHP integrates deductive
judgment Process
and understanding
Complexity
and systems approaches in
repetition
solving complex problems
Repetition
Thethrough
AHP does
not insist on
The AHP can deal with the
consensus but synthesizes a
Interdependen
Judgment and
interdependence of elements
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ce and does not
in a system
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The AHP takes into
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relative
Hierarchic
elements
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Structuring
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select the best alternative
The AHP provides a scale for
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AHP
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s
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cy
judgments used in
determining priorities

AHP

Q&A

Hierarchy Development

The first step in the AHP is to develop a graphical

representation of the problem in terms of the overall
goal, the criteria, and the decision alternatives.

Overall Goal:

Criteria:
Decision
Alternatives:

Select the Best

Car
Price

MPG

Comfor
t

Style

Car A

Car A

Car A

Car A

Car B

Car B

Car B

Car B

Car C

Car C

Car C

Car C

Pairwise Comparisons

Pairwise comparisons are fundamental building

blocks of the AHP.

The AHP employs an underlying scale with

values from 1 to 9 to rate the relative
preferences for two items.

Pairwise Comparison Matrix

Element Ci,j of the matrix is the measure of preference of the item in

row i when compared to the item in column j.
AHP assigns a 1 to all elements on the diagonal of the pairwise
comparison matrix.

AHP obtains the preference rating of Cj,i by computing the reciprocal

(inverse) of Ci,j (the transpose position).

When we compare any alternative against itself (on the criterion) the judgment
must be that they are equally preferred.

The preference value of 2 is interpreted as indicating that alternative i is twice as

preferable as alternative j. Thus, it follows that alternative j must be one-half as
preferable as alternative i.

According above rules, the number of entries actually filled in by

decision makers is (n2 n)/2, where n is the number of elements to be
compared.

Preference Scale - 1
Verbal Judgment of Preference
Extremely preferred
Very strongly to extremely preferred
Very strongly preferred

Numerical
Rating
9
8
7

Strongly to very strongly preferred

Strongly preferred
Moderately to strongly preferred

5
4

Moderately preferred
Equally to moderately preferred
Equally preferred

3
2
1

Preference Scale - 2

Research and experience have confirmed the

nine-unit scale as a reasonable basis for
discriminating between the preferences for two
items.

Even numbers (2, 4, 6, 8) are intermediate values

for the scale.

A value of 1 is reserved for the case where the two

items are judged to be equally preferred.

Synthesis

The procedure to estimate the relative priority for each

decision alternative in terms of the criterion is referred
to as synthesization .

Once the matrix of pairwise comparisons has been developed,

priority of each of the elements
(priority of each alternative on specific criterion; priority of
each criterion on overall goal) being compared can be
calculated.

The exact mathematical procedure required to perform

synthesization involves the computation of eigenvalues and
eigenvectors, which is beyond the scope of this text.

Procedure for Synthesizing Judgments

The

following three-step procedure provides a good

approximation of the synthesized priorities.
Step 1: Sum the values in each column of the pairwise
comparison matrix.
Step 2: Divide each element in the pairwise matrix by its
column total.

The resulting matrix is referred to as the normalized pairwise

comparison matrix.

Step 3: Compute the average of the elements in each row of

the normalized matrix.

Example:

These averages provide an estimate of the relative priorities

of the elements being compared.

Example: Synthesizing Procedure - 0

Step 0: Prepare pairwise comparison matrix

Comfort

Car A Car B Car C

Car A

Car B

1/2

Car C

1/8

1/6

Example: Synthesizing Procedure - 1

Step 1: Sum the values in each column.

Comfort

Car A Car B Car C

Car A

Car B

1/2

Car C

1/8

1/6

13/8

19/6

15

Column totals

Example: Synthesizing Procedure - 2

Step 2: Divide each element of the matrix by its column
total.

All columns in the normalized pairwise comparison

matrix now have a sum of 1.

Comfort

Car A Car B Car C

Car A

8/13 12/19

8/15

Car B

4/13

6/19

6/15

Car C

1/13

1/19

1/15

Example: Synthesizing Procedure - 3

Step 3: Average the elements in each row.

The values in the normalized pairwise comparison matrix have been

converted to decimal form.
The result is usually represented as the (relative) priority vector.

Comfort

Car A Car B

Car C

Row Avg.

Car A

0.615

0.632

0.533

0.593 0.593

Car B

0.308

0.316

0.400

0.341

Car C

0.077

0.053

0.067

0.066

Total

1.000

0.341

0.066

Consistency - 1

An important consideration in terms of the quality of

the ultimate decision relates to the consistency of
judgments that the decision maker demonstrated
during the series of pairwise comparisons.

It should be realized perfect consistency is very difficult to

achieve and that some lack of consistency is expected to
exist in almost any set of pairwise comparisons.

Example:

Consistency - 2

To handle the consistency question, the AHP provides

a method for measuring the degree of consistency
among the pairwise judgments provided by the
decision maker.

If the degree of consistency is acceptable, the decision

process can continue.

If the degree of consistency is unacceptable, the decision

maker should reconsider and possibly revise the pairwise
comparison judgments before proceeding with the analysis.

Consistency Ratio

The AHP provides a measure of the consistency

of pairwise comparison judgments by
computing a consistency ratio .

The ratio is designed in such a way that values of

the ratio exceeding 0.10 are indicative of
inconsistent judgments.

Although the exact mathematical computation of

the consistency ratio is beyond the scope of this
text, an approximation of the ratio can be obtained.

Procedure: Estimating Consistency Ratio - 1

Step 1: Multiply each value in the first column of the
pairwise comparison matrix by the relative priority
of the first item considered. Same procedures for
other items. Sum the values across the rows to
obtain a vector of values labeled weighted sum.
Step 2: Divide the elements of the vector of weighted
sums obtained in Step 1 by the corresponding
priority value.
Step 3: Compute the average of the values computed in
step 2. This average is denoted as max.

Procedure: Estimating Consistency Ratio - 2

Step 4: Compute the consistency index (CI):

max n
CI
n 1

Where n is the number of items being compared

Step 5: Compute the consistency ratio (CR):

CI
CR
Where RIRI
is the random index, which is the consistency index of a randomly
generated pairwise comparison matrix. It can be shown that RI depends
on the number of elements being compared and takes on the following
values.

Example:

Random Index

Random index (RI) is the consistency index of a

randomly generated pairwise comparison matrix.

n
RI

RI depends on the number of elements being compared

(i.e., size of pairwise comparison matrix) and takes on
the following values:

10

0.00 0.00 0.58 0.90 1.12 1.24 1.32 1.41 1.45 1.49

Example: Inconsistency
Preferences: If, A B (2); B C (6)
Then, A C (should be 12) (actually 8)

Inconsistency
Comfort

Car A Car B Car C

Car A

Car B

1/2

Car C

1/8

1/6

Example: Consistency Checking - 1

Step 1: Multiply each value in the first column of the pairwise
comparison matrix by the relative priority of the first item
considered. Same procedures for other items. Sum the
values across the rows to obtain a vector of values labeled
weighted sum.
1
2
8 0.593 0.682 0.528 1.803
0.593 1 2 0.341 1 0.066 6 0.297 0.341 0.396 1.034
1 8
1 6
1 0.074 0.057 0.066 0.197

Example: Consistency Checking - 2

Step 2: Divide the elements of the vector of weighted
sums by the corresponding priority value.
1.803 0.593 3.040
1.034 0.341 3.032

0.197 0.066 2.985

Step 3: Compute the average of the values computed in

step 2 (max).
max

3.040 3.032 2.985

3.019
3

Example: Consistency Checking - 3

Step 4: Compute the consistency index (CI).
max n 3.019 3
CI

0.010
n 1
3 1

Step 5: Compute the consistency ratio (CR).

CI 0.010
CR

0.017 0.10
RI 0.58

The degree of consistency exhibited in the pairwise

comparison matrix for comfort is acceptable.

Development of Priority Ranking

The overall priority for each decision
alternative is obtained by summing the product
of the criterion priority (i.e., weight) (with
respect to the overall goal) times the priority
(i.e., preference) of the decision alternative
with respect to that criterion.
Ranking these priority values, we will have
AHP ranking of the decision alternatives.
Example:

Example: Priority Ranking 0A

Step 0A: Other pairwise comparison matrices
Comfort

Car A

Car B

Car A

1
Criterion

Car B

1/2
Price

Car C

1/8
MPG

1/6

Comfort

Car C

Price

Car A

Car B

Car C

1Style 1/3

3 2
4 1/4

1Car A 1/2Car B
2
1
1
1/3

Car C

Car A
MPG
Comfort

1 6
1/3 1

Car
3 B
2
Car
1 C 1/4
4
Style

Price

1/4

1/2 C
Car
1/2
1/6

Car B

1/3

Car B

Car C

Car C

1/4

1/7

MPG

Car A

Car A

Style

Car B

4
Car A

Example: Priority Ranking 0B

Step 0B: Calculate priority vector for each matrix.

Car A
Car B
Car C

Price

MPG Comfort

0.123
0.320

0.557

0.087
0.274

0.639

0.593
0.341

0.066

Style
0.265
0.655

0.080

Criterion
Price
MPG
Comfort
Style

0.398
0.085

0.218

0
.
299

Example: Priority Ranking 1

Step 1: Sum the product of the criterion priority (with respect to
the overall goal) times the priority of the decision
alternative with respect to that criterion.
Overall car A priority 0.398 (0.123) 0.085 (0.087) 0.218 (0.593) 0.299 (0.265) 0.265

Step 2: Rank the priority values.

Alternative

Priority

Car B

0.421

Car C

0.314

Car A

0.265
Total

1.000

Hierarchies: A Tool of the Mind

Hierarchies are a fundamental tool of the human

mind.

They involve identifying the elements of a problem,

grouping the elements into homogeneous sets, and
arranging these sets in different levels.

Complex systems can best be understood by breaking them

down into their constituent elements, structuring the
elements hierarchically, and then composing, or
synthesizing, judgments on the relative importance of the
elements at each level of the hierarchy into a set of overall
priorities.

Classifying Hierarchies

Hierarchies can be divided into two kinds: structural and functional.

In structural hierarchies, complex systems are structured into their
constituent parts in descending order according to structural
properties (such as size, shape, color, or age).

Functional hierarchies decompose complex systems into their

constituent parts according to their essential relationships.

Structural hierarchies relate closely to the way our brains analyze complexity
by breaking down the objects perceived by our senses into clusters,
subclusters, and still smaller clusters. (more descriptive)

Functional hierarchies help people to steer a system toward a desired goal

like conflict resolution, efficient performance, or overall happiness. (more
normative)

For the purposes of the study, functional hierarchies are the only
link that need be considered.

Hierarchy

Each set of elements in a functional hierarchy occupies a level

of the hierarchy.

The top level, called the focus, consists of only one element: the broad,
overall objective.
Subsequent levels may each have several elements, although their
number is usually small between five and nine.

Because the elements in one level are to be compared with one another
against a criterion in the next higher level, the elements in each level must
be of the same order of magnitude. (Homogeneity)
To avoid making large errors, we must carry out clustering process. By
forming hierarchically arranged clusters of like elements, we can
efficiently complete the process of comparing the simple with the very
complex.
Because a hierarchy represents a model of how the brain analyzes
complexity, the hierarchy must be flexible enough to deal with that
complexity.

Types of Functional Hierarchy

Some functional hierarchies are complete, that is, all

the elements in one level share every property in the
nest higher level.

Some are incomplete in that some elements in a level

do not share properties.

Constructing Hierarchies - 1

Ones approach to constructing a hierarchy depends on the kind

of decision to be made.

If it is a matter of choosing among alternatives, we could start from the

bottom by listing the alternatives.
(decision alternatives => criteria => overall goal)

Once we construct the hierarchy, we can always alter parts of it

later to accommodate new criteria that we may think of or that
we did not consider important when we first designed it.
(AHP is flexible and time-adaptable)

Sometimes the criteria themselves must be examined in details, so a

level of subcriteria should be inserted between those of the criteria and
the alternatives.

Constructing Hierarchies - 2

If one is unable to compare the elements of a level in terms of the

elements of the next higher level, one must ask in what terms they can
be compared and then seek an intermediate level that should amount to
a breakdown of the elements of the next higher level.

The basic principle in structuring a hierarchy is to see if one can answer

the question: Can you compare the elements in a lower level in terms of
some all all the elements in the next higher level?

The depth of detail (in level construction) depends on how much

knowledge one has about the problem and how much can be gained by
using that knowledge without unnecessarily tiring the mind.

The analytic aspects of the AHP serve as a stimulus to create

new dimensions for the hierarchy. It is a process for inducing
cognitive awareness. A logically constructed hierarchy is a byproduct of the entire AHP approach.

Constructing Hierarchies II - 1

When constructing hierarchies one must include enough

relevant detail to depict the problem as thoroughly as possible.

Consider environment surrounding the problem.

Identify the issues or attributes that you feel contribute to the solution.

Identify the participants associated with the problem.

Arranging the goals, attributes, issues, and stakeholders in a

hierarchy serves two purposes:

It provides an overall view of the complex relationships inherent in the

situation.

It permits the decision maker to assess whether he or she is comparing

issues of the same order of magnitude in weight or impact on the
solution.

Constructing Hierarchies II - 2

The elements should be clustered into homogeneous groups of

five to nine so they can be meaningfully compared to elements in
the next higher level.

The only restriction on the hierarchic arrangement of elements is that any

element in one level must be capable of being related to some elements in
the next higher level, which serves as a criterion for assessing the relative
impact of elements in the level below.

Elements that are of less immediate interest can be represented in general

terms at the higher levels of the hierarchy and elements critical to the
problem at hand can be developed in greater depth and specificity.

It is often useful to construct two hierarchies, one for benefits and one for
costs to decide on the best alternative, particularly in the case of yes-no
decisions.

Constructing Hierarchies II - 3

Specifically, the AHP can be used for the following kinds of

decision problems:
Choosing the best alternatives
Generating a set of alternatives

Predicting outcomes and assessing

risks

Setting priorities

Designing a system

Measuring performance

Ensuring system reliability

Resolving conflicts

Determining requirements

Allocating resources (Benefit/Cost

Analysis)

Optimizing
Planning

Making group decisions

Clearly the design of an analytic hierarchy is more art than

science. But structuring a hierarchy does require substantial
knowledge about the system or problem in question.

Need for Priorities - 1

The analytical hierarchy process deals with both (inductive and

deductive) approaches simultaneously.

Systems thinking (inductive approach) is addressed by structuring ideas

hierarchically, and causal thinking (deductive approach) is developed
through paired comparison of the elements in the hierarchy and
through synthesis.

Systems theorists point out that complex relationships can always be

analyzed by taking pairs of elements and relating them through their
attributes. The object is to find from many things those that have a
necessary connection.

The object of the system approach (,which complemented the causal

approach) is to find the subsystems or dimensions in which the parts are
connected.

Need for Priorities - 2

The judgment applied in making paired comparisons

combine logical thinking with feeling developed from
informed experience.

The mathematical process described (in priority

development) explains how subjective judgments can
be quantified and converted into a set of priorities on
which decisions can be based.

Setting Priorities - 1

The first step in establishing the priorities of elements

in a decision problem is to make pairwise
comparisons, that is, to compare the elements in pairs
against a given criterion.

The (pairwise comparison) matrix is a simple, wellestablished tool that offers a framework for [1] testing
consistency, [2] obtaining additional information through
making all possible comparisons, and [3] analyzing the
sensitivity of overall priorities to changes in judgment.

Setting Priorities - 2

To begin the pairwise comparison, start at the top of the hierarchy

to select the criterion (or, goal, property, attribute) C, that will be used
for making the first comparison. Then, from the level
immediately below, take the elements to be compared: A1, A2, A3,
and so on.
To compare elements, ask: How much more strongly does this
element (or activity) possess (or contribute to, dominate, influence, satisfy,
or benefit) the property than does the element with which it is being
compared?

The phrasing must reflect the proper relationship between the elements in
one level with the property in the next higher level.

To fill in the matrix of pairwise comparisons, we use numbers to

represent the relative importance of one element over another with
respect to the property.

Synthesis II

To obtain the set of overall priorities for a decision

problem, we have to pull together or synthesize the
judgments made in the pairwise comparisons, that is,
we have to do weighting and adding to give us a
single number to indicate the priority of each element.

The procedure is described earlier.

Consistency II - 1

In decision making problems, it may be important to know how

good our consistency is, because we may not want the decision
to be based on judgments that have such low consistency that
they appear to be random.
How damaging is inconsistency?

Usually we cannot be so certain of our judgments that we would insist on

forcing consistency in the pairwise comparison matrix (except diagonal
ones).
As long as there is enough consistency to maintain coherence among the
objects of our experience, the consistency need not be perfect.

When we integrate new experiences into our consciousness, previous

relationships may change and some consistency is lost.
It is useful to remember that most new ideas that affect our lives tend to
cause us to rearrange some of our preferences, thus making us inconsistent
with our previous commitments.

Consistency II - 2

The AHP measure the overall consistency of judgments by

means of a consistency ratio.

The procedure for determining consistency ratios is described

earlier.

Greater inconsistency indicates lack of information or lack of

understanding.

One way to improve consistency when it turns out to be

unsatisfactory is to rank the activities by a simple order based
on the weights obtained in the first run of the problem.

A second pairwise comparison matrix is then developed with this

knowledge of ranking in mind.

The consistency should generally be better.

Backup Materials

Interdependence

So far we have considered how to establish the priority of

elements in a hierarchy and how to obtain the set of overall
priorities when the elements of each level are independent.

However, often the elements are interdependent, that is, there

are overlapping areas or commonalities among elements.

There are two principal kinds of interdependence among

elements of a hierarchy level:

Additive interdependence

Synergistic interdependence

Additive Interdependence

In additive interdependence , each

element contributes a share that is uniquely its own
and also contributes indirectly by overlapping or
interacting with other elements.

The total impact can be estimated by [1] examining the

impacts of the independent and the overlapping shares and
then [2] combining the impacts.

In practice, most people prefer to ignore the rather complex

mathematical adjustment for additive interdependence and
simply rely on their own judgment (putting higher priority
on those elements having more impacts).

Synergistic Interdependence - 1

In synergistic interdependence , the impact of

the interaction of the elements is greater than the sum of the
impacts of the elements, with due consideration given to their
overlap.

This type of interdependence occurs more frequently than additive

interdependence and amounts to creating a new entity for each
interaction.

Much of the problem of synergistic interdependence arises from the

fuzziness of words and even the underlying ideas they represent.

The qualities that emerge cannot be captured by a mathematical process

(such as Venn diagrams). What we have instead is the overlap of
elements with other elements to produce an element with new priorities
that are not discernible in its parent parts.

Synergistic Interdependence - 2

With synergistic interdependence, one needs to introduce (for

evaluation) additional criteria (new elements) that reveal the
nature of the interaction.

The overlapping elements should be separated from its constituent

parts. Its impact is added to theirs at the end to obtain their overall
impact. Synergy of interaction is also captured at the upper levels
when clusters are compared according to their importance

Note that if we increase the elements being compared by one

more element and attempt to preserve the consistency of their
earlier ranking, we must be careful how we make comparisons
with the new element.

Once we compare one of the previous elements with a new one, all
other relationships should be automatically set; otherwise there would
be inconsistency and the rank order might be changed.

Synergistic Interdependence - 3

The AHP provides a simple and direct means for

measuring interdependence in a hierarchy.

The basic idea is that wherever there is interdependence,

each criterion becomes an objective and all the criteria are
compared according to their contributions to that criterion.

This generates a set of dependence priorities indicating the

relative dependence of each criterion on all the criteria.

These priorities are then weighted by the independence

priority of each related criterion obtained from the
hierarchy and the results are summed over each row, thus
yielding the interdependence weights.

Synergistic Interdependence - 4

Note that prioritization from the top of the hierarchy

downward includes less and less synergy as we move
from the larger more interactive clusters to the small
and more independent ones.
Interdependence can be treated in two ways.

Either the hierarchy is structured in a way that identifies

independent elements or dependence is allowed for by
evaluating in separate matrices the impact of all the
elements on each of them with respect to the criterion
being considered.

Advantages of the AHP

Unity
Process
Repetition
Judgment and
Consensus

Complexity

AHP

Tradeof
s
Synthesi
s

Interdependen
ce
Hierarchic
Structuring
Measurement

Consisten
cy

Research Issues

Hierarchy construction

Method to deal with interdependence

Fuzziness in relationships among elements?

Priority setting

Scale vs. other scaling methods

How to make subjective judgment more objective

Application

Performance measurement via AHP vs. DEA

Network vs. hierarchic structure

How to deal with situation when subjective judgment depends

on relative weight of the criterion based?