Lecture 08

Analytic Hierarchy Process

(Module 1)

Industrial Systems Engineering Dept.- IU

Office: Room 508
 Learning Objectives
Students will be able to:
1. Use the multifactor evaluation process in making
decisions that involve a number of factors, where
importance weights can be assigned.
2. Understand the use of the analytic hierarchy process
in decision making.
3. Contrast multifactor evaluation with the analytic
hierarchy process.
Module Outline

M1.1 Introduction

M1.2 Multifactor Evaluation Process

M1.3 Analytic Hierarchy Process

Introduction
 Multifactor decision making involves individuals
subjectively and intuitively considering various
factors prior to making a decision.

 Multifactor evaluation process (MFEP) is a

quantitative approach that gives weights to each
factor and scores to each alternative.

 Analytic hierarchy process (AHP) is an approach

designed to quantify the preferences for various
factors and alternatives.
 Multifactor Evaluation Process
Example: Steve. M.: considering employment with 3 companies.
determined 3 factors important to him, assigned each factor a weight.

Steve evaluated the various factors on a 0 to 1 scale for each

of these jobs.

Factor Importance AA EDS, PW,

(weight) Co. LTD. Inc.
Salary 0.3 0.7 0.8 0.9

Career 0.6 0.9 0.7 0.6

Advancement
Location 0.1 0.6 0.8 0.9

Weights should sum to 1 Score Table

Evaluation of AA Co.
Factor X Factor = Weighted
Weight Evaluation Evaluation

Factor Factor Factor Weighted

Name Weight Evaluation Evaluation
Salary 0.3 0.7 0.21
Career 0.6 0.9 0.54
Location 0.1 0.6 0.06
Total 0.81
Comparison of Results

Factor AA Co. EDS,LTD. PW,Inc.

Salary 0.21 0.24 0.27

Career 0.54 0.42 0.36

Location 0.06 0.08 0.09

Weighted 0.81 0.74 0.72

Evaluation

Decision is AA Co: Highest weighted evaluation

The Analytic Hierarchy Process (AHP)

 Founded by Saaty in 1980.

 It is a popular and widely used method
for multi-criteria decision making.
 Allows the use of qualitative, as well as Dr. Thomas L. Saaty

quantitative criteria in evaluation. Distinguished Prof. at U. of Pittsburgh

 Wide range of applications exists:

 Selecting a car for purchasing

 Deciding upon a place to visit for vacation

 Deciding upon an MBA program after graduation.

 …

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AHP-General Idea
 Develop an hierarchy of decision criteria and define the
alternative courses of actions.

 AHP algorithm is basically composed of two steps:

1. Determine the relative weights of the decision criteria
2. Determine the relative rankings (priorities) of
alternatives

Both qualitative and quantitative information can be

compared by using informed judgments to derive
weights and priorities.

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Steps
 Step 0: Construction of Hierarchy Structure
(including: Goal, Factors, Criteria, and Alternatives)
 Step 1: Calculation of Factor Weight
 Step 1-1: Pairwise Comparison Matrix
 Step 1-2: Eigenvalue and Eigenvector (Priority vector)
 Step 1-3:Consistency Test
Consistency Index
 Consistency Ratio
 Step 2:Calculation of Level Weight

 Step 3: Calculation of Overall Ranking

 Hierarchy Tree
Level 0 Goal More General

Level 1 (factors) C1 C2 C3

C11 C12 C13 C21 C22 C31 C32 C33

Level 2 (criteria)

Sub-criteria at the More Specific

lowest level

Level .. Alternatives
Tom Saaty suggests that hierarchies be limited to six levels and nine items per
level.

This is based on the psychological result that people can consider 7 +/-
+/ - 2
items simultaneously (Miller, 1956).
Pairwise Comparisons
Size

Apple A Apple B Apple C

Size Apple A Apple B Apple C
Comparison
Resulting Relative Size
Priority of Apple
Eigenvector

Apple A 1 2 6 6/10 A

Apple B 1/2 1 3 3/10 B

Apple C 1/6 1/3 1 1/10 C

Criteria #1 Criteria #2

9 8 7 6 5 4 3 2 2 3 4 5 6 7 8 9
1
Intensity of
Importance
 Ranking of Criteria and Alternatives
Pairwise Comparison Matrix
to A1 A2 A3
Pairwise Comparison Matrix A = ( aij )
A1 a11 a12 a13

A2 a21 a22 a32 (a) aii = 1 A comparison of criterion i with itself: equally important

A3 a31 a32 a33 (b) aij = 1/ aji aji are reverse comparisons and must be the reciprocals of aij

Ranking Scale for Criteria and Alternatives

Values for aij :
Numerical values Verbal judgment of preferences
intermediate
1 equally important 2,4,6,8 => values
3 weakly more important
5 strongly more important
7 very strongly more important
reciprocals => reverse
comparisons
9 absolutely more important
Example 1: Car Selection (1/15)
 Objective
 Selecting a car
 Criteria
 Style, Reliability, Fuel-economy Cost?
 Alternatives
 Civic Coupe, Saturn Coupe, Ford Escort, Mazda Miata

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 Example 1: Car Selection (2/15)
Hierarchy tree

Selecting
a New Car

Style Reliability Fuel Economy

Civic Saturn Escort Miata

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 Example 1: Car Selection (3/15)
Ranking of Criteria

Style Reliability Fuel Economy

Style 1/1 1/2 3/1

Reliability 2/1 1/1 4/1

Fuel Economy 1/3 1/4 1/1

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 Example 1: Car Selection (4/15)
Ranking of Priorities
 Consider [Ax = x] where
 A is the comparison matrix of size n×n, for n criteria, also called the priority
matrix.
 x is the Eigenvector of size n×1, also called the priority vector.

  is the Eigenvalue,   > n.

 To find the ranking of priorities, namely the Eigen Vector X:

1) Normalize the column entries by dividing each entry by the sum of the column.
2) Take the overall row averages.

Pairwise Comp. Matrix Norm. Pairwise Comp. Matrix Priority vector

Normalized Row
1 0.5 3 0.30 0.29 0.38 0.3196
Column Sums Averages
A= 2 1 4 0.60 0.57 0.50 0.5584
X=
0.33 0.25 1.0 0.10 0.14 0.13 0.1220

Column sums 3.33 1.75 8.00 1.00 1.00 1.00

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 Example 1: Car Selection (5/15)
Ranking of Priorities (cont.)
Criteria weights
 Style .3196 ≈ .3 Second most important criterion

 Reliability .5584 ≈ .6 First important criterion

 Fuel Economy .1220 ≈ .1 The least important criterion

Here is the tree of criteria with the criteria weights

Selecting
a New Car
1.0

Style Reliability Fuel Economy

.3196 .5584 .1220

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 Example 1: Car Selection (6/15)
Checking for Consistency
 Consistency Ratio (CR): measure how consistent the judgments have been
relative to large samples of purely random judgments.

 AHP evaluations are based on the asumption that the decision maker is
rational, i.e., if A is preferred to B and B is preferred to C, then A is preferred to
C.

 Suppose we judge apple A to be twice as large as apple B and apple

B to be three times as large as apple C.
 To be perfectly consistent, apple A must be six times as large as
apple C.

 If the CR is greater than 0.1 the judgments are untrustworthy because

they are too close for comfort to randomness and the exercise is
valueless or must be repeated.

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 Example 1: Car Selection (7/15)
Calculation of Consistency Ratio
 The next stage is to calculate , Consistency Index (CI) and the
Consistency Ratio (CR).
 Consider [Ax = x] where x is the Eigenvector.
A x Ax x
1 0.5 3 0.30 0.90 0.30
0.60 1.60 =  0.60
2 1 4 =
0.10
0.10 0.35
0.333 0.25 1.0
0.90/0.30 3.00
3.0  2.67  3.5
Consistency Vector = 1.60/0.60 = 2.67   3.06
0.35/0.10 3.50 3
 Consistency index (CI) is found by
  n 3.06  3
CI    0.03
n 1 3 1
 Note: This is just an approximate method to determine value of λ 20
 Example 1: Car Selection (8/15)
Consistency Index
 reflects the consistency of  Tabulated by size of matrix (n):
one’s judgement (given by author)
n RI
 n 2 0.0
CI  3 0.58
n 1 4 0.90
5 1.12
6 1.24
Random Index (RI)
7 1.32
 the CI of a randomly-generated 8 1.41
pairwise comparison matrix 9 1.45
10 1.51
 Example 1: Car Selection (9/15)
Consistency Ratio
CR  CI
RI
In practice, a CR of 0.1 or below is considered acceptable.
 Any higher value at any level indicate that the judgements
warrant re-examination.
In the above example:
CI 0.03
CR    0.052  0.1
RI 0.58
so, the evaluations are consistent
 Example 1: Car Selection (10/15)
Ranking Alternatives Priority vector
Style Civic Saturn Escort Miata
Civic 1 1/4 4 1/6 0.13
Saturn 4 1 4 1/4 0.24
Escort 1/4 1/4 1 1/5 0.07
Miata 6 4 5 1 0.56

Reliability Civic Saturn Escort Miata

Civic 1 2 5 1 0.38
Saturn 1/2 1 3 2 0.29
Escort 1/5 1/3 1 1/4 0.07
Miata 1 1/2 4 1 0.26

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 Example 1: Car Selection (11/15)
Ranking Alternatives (cont.)
Miles/gallon Normalized

Fuel Economy Civic 34 .30

Saturn 27 .24
Escort 24 .21
Miata 28 .25
113 1.0
! Since fuel economy is a quantitative measure, fuel consumption ratios
can be used to determine the relative ranking of alternatives; however
this is not obligatory. Pairwise comparisons may still be used in some
cases.

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 Example 1: Car Selection (12/15)
Ranking Alternatives (cont.)
Selecting a New Car
1.00

Style Reliability Fuel Economy

0.30 0.60 0.10
Civic 0.13 Civic 0.38 Civic 0.30
Saturn 0.24 Saturn 0.29 Saturn 0.24
Escort 0.07 Escort 0.07 Escort 0.21
Miata 0.56 Miata 0.26 Miata 0.25

Car Style(0.3) Reliability(0.6) Fuel Economy(0.1) Total

Civic 0.13 0.38 0.30 0.30

Saturn 0.24 0.29 0.24 0.27
Escort 0.07 0.07 0.21 0.08
Miata 0.56 0.26 0.25 0.35 largest
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 Example 1: Car Selection (13/15)
Ranking of Alternatives (cont.)

Reliability

Economy
Style

Fuel
Civic .13 .38 .30 .30 .30
Saturn .24 .29 .24 .27
x
.60 =
Escort .07 .07 .21 .08
Miata .56 .26 .25 .10 .35

Priority matrix Factor Weights

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 Example 1: Car Selection (14/15)
Including Cost as a Decision Criteria
Adding “cost” as a a new criterion is very difficult in AHP. A new column
and a new row will be added in the evaluation matrix. However, whole
evaluation should be repeated since addition of a new criterion might
affect the relative importance of other criteria as well!

Instead one may think of normalizing the costs directly and calculate the
cost/benefit ratio for comparing alternatives!

Normalized Cost/Benefits
Cost Benefits Ratio
Cost
 CIVIC $12K .22 .30 0.73
 SATURN $15K .28 .27 1.04
 ESCORT $ 9K .17 .08 2.13
 MIATA $18K .33 .35 0.94
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 Example 1: Car Selection (15/15)
Methods for including Cost Criterion
 Use graphical representations to make trade-offs.
40 Miata Miata
Civic
35 Civic
30

Benefit
25
20 Saturn Saturn
15
Escort Escort
10
5
0
0 5 10 15 20 25 30 35

Cost

 Calculate cost/benefit ratios

 Use linear programming
 Use seperate benefit and cost trees and then combine the results

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Complex Decisions

•Many levels of criteria and sub-criteria exists for

complex problems.

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 Example 2: Buying the best car
*Goal: Buying the best car
*There are three criteria:
 Cost
 Quality
 Maintenance
 Insurance
 Services

*Three alternatives: Honda, Mercedes, Hyundai

 Example 2: Buying the best car
Level 0

Level 1
Criteria

Level 2
Sub-criteria

Alternatives

The Hierarchy for prooblem Buying the best car

Example 2: Buying the best car
Step 1: Criterion comparison
Price Mantenance Quality
• Criterion comparison
Price 1 3 5

Maintenance 1/3 1 2

Quality 1/5 1/2 1

• Normalize values:
Price Maintenance Quality
Price 0.652 0.667 0.625
Maintenance 0.217 0.222 0.25
Quality 0.131 0.111 0.125
Price
• Find Column vector Price 0.648
Mainternance 0.23
Quality 0.122

• The process is repeated for the sub-criteria until the evaluation for all other
alternatives. This example will be supported by Expert Choice software
Example 2: Buying the best car
Step 2: Determining the Consistency Ratio - CR
2.1. Determining the Consistency vector
• We begin by determining the weighted sum vector. This is done by
multiplying the column vector times the pairwise comparison matrix.
Column vector: Pairwise comparison matrix:
Price 0.648 1 3 5
X
Mainternance = 0.230
1/3 1 2
Quality 0.122
1/5 1/2 1
Consistency vector Weighted sum vector
1.948
Consistency vector =
0.690
Weighted sum vector/ Column vector
0.366
 Example 2: Buying the best car
2.2. Determining  and the Consistency Index-CI

 = (3.006+3.0+3.0) / 3 = 3.002
The CI is:
CI = (3.002 - 3) / (3 - 1) = 0.001

2.3. Determining the Consistency Ratio-CR

with n = 3, we get RI = 0.58

CR = 0.001 / 0.58 = 0.0017

Since 0< CR < 0.1, we accept this result and move to the lower
level. The procedure is repeated till the lowest level.
 Continue for other levels: Insurance Service

 For subcriteria Insurance – Service: Insurance 1 3

Service 1/3 1

• For Cost • For Service

Honda Mer Huyndai
HONDA 25000
Honda 1 3 4
MER. 60000
Mer 1/3 1 2
HUYNDAI 15000
Huyndai 1/4 1/2 1

• For Insurance: • For Quality

Honda Mer Huyndai Honda Mer Huyndai

Honda 1 1/3 1/4 Honda 1 1/4 1/5

Mer 3 1 2 Mer 4 1 1/2

Huyndai 4 1/2 1 Huyndai 5 2 1

 And make your final evaluation (students self develop this evaluation)
 Select the
"best" car

COST Maintenance Quality

Insurance Service

Honda Mercedes Huyndai

 1) Weights are defined for 2) ...and multiplied down to get
each hierarchical level... the final lower level weights.
0.6 0.4 0.6 0.4

Multiply

0.7 0.3 0.2 0.6 0.2 0.7 0.3 0.2 0.6 0.2

0.42 0.18 0.08 0.24 0.08

Notes:
• In general, the evaluation scores are collected from
many experts and the average scores is used in the
pairwise comparison matrix.
•The AHP solving is computer-aided by Expert Choice
(EC) software.
- Building structure of problem !!!
- Enter judgments (Pairwise Comparisons)
- Analysis the weights
- Sensitivity Analysis
- Advantages and disadvantages
- Miscellaneous
 More about AHP: Pros and Cons
•It allows multi criteria decision making.

•It is applicable when it is difficult to formulate

Pros

criteria evaluations, i.e., it allows qualitative

evaluation as well as quantitative evaluation.

•It is applicable for group decision making

environments

•There are hidden assumptions like consistency. Users should be trained to use
Repeating evaluations is cumbersome. AHP methodology.

•Difficult to use when the number of criteria or

Cons

alternatives is high, i.e., more than 7.

Use cost/benefit ratio if
•Difficult to add a new criterion or alternative applicable

•Difficult to take out an existing criterion or

alternative, since the best alternative might
differ if the worst one is excluded.

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