Management Science Multi Criteria Decision Making

Multi Criteria Decision Making

Bumho Son
College of Business Administration, CAU
Management Science Multi Criteria Decision Making

Overview
▪ Study of problems with several criteria, i.e., multiple criteria, instead of
a single objective when making a decision
▪ Three techniques discussed: goal programming, the analytical
hierarchy process and scoring models
▪ Goal programming
▪ Variation of linear programming considering more than one objective (goals) in
the objective function
▪ Analytical hierarchy process
▪ Develops a score for each decision alternative based on comparisons of each
under different criteria reflecting the decision makers’ preferences
▪ Scoring models
▪ Based on a relatively simple weighted scoring technique

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Management Science Multi Criteria Decision Making

Goal Programming

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Management Science Multi Criteria Decision Making

Goal Programming Example

▪ Beaver Creek Pottery Company Example

Maximize Z = $40x1 + 50x2

subject to:
1x1 + 2x2  40 hours of labor
4x1 + 3x2  120 pounds of clay
x1, x2  0
Where: x1 = number of bowls produced
x2 = number of mugs produced

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Management Science Multi Criteria Decision Making

Goal Programming Example

▪ Adding objectives (goals) in order of importance, the company…
1. …does not want to use fewer than 40 hours of labor per day
2. …would like to achieve a satisfactory profit level of $1,600 per day
3. …prefers not to keep more than 120 pounds of clay on hand each day
4. …would like to minimize the amount of overtime.

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Management Science Multi Criteria Decision Making

Goal Constraint Requirements

▪ All goal constraints are equalities that include deviational variables 𝒅−
and 𝒅+
▪ A positive deviational variable (𝒅+ ) is the amount by which a goal level
is exceeded
▪ A negative deviation variable (𝒅− ) is the amount by which a goal level
is underachieved.
▪ At least one or both deviational variables in a goal constraint must
equal zero
▪ The objective function seeks to minimize the deviation from the
respective goals in the order of the goal priorities

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Management Science Multi Criteria Decision Making

Goal Constraints

Labor goal:
x1 + 2x2 + d1- - d1+ = 40 (hours/day)

Profit goal:
40x1 + 50 x2 + d2 - - d2 + = 1,600 ($/day)

Material goal:
4x1 + 3x2 + d3 - - d3 + = 120 (lbs of clay/day)

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Management Science Multi Criteria Decision Making

Objective Function

1. Labor goals constraint

(priority 1 - less than 40 hours labor; priority 4 - minimum overtime):
▪ Minimize P1d1-, P4d1+
2. Add profit goal constraint
(priority 2 - achieve profit of $1,600):
▪ Minimize P1d1-, P2d2-, P4d1+
3. Add material goal constraint
(priority 3 - avoid keeping more than 120 pounds of clay on hand):
▪ Minimize P1d1-, P2d2-, P3d3+, P4d1+

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Management Science Multi Criteria Decision Making

Goal Programming: Complete Model

Complete Goal Programming Model:

Minimize P1d1-, P2d2-, P3d3+, P4d1+ Not summation!
subject to:
x1 + 2x2 + d1- - d1+ = 40 (labor)
40x1 + 50 x2 + d2 - - d2 + = 1,600 (profit)
4x1 + 3x2 + d3 - - d3 + = 120 (clay)
x1, x2, d1 -, d1 +, d2 -, d2 +, d3 -, d3 +  0

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Management Science Multi Criteria Decision Making

Alternative Forms of Goal Constraints

▪ Changing fourth-priority goal “limit overtime to 10 hours” instead of
minimizing overtime:
▪ 𝑑1− + 𝑑4− − 𝑑4+ = 10
▪ minimize 𝑃1 𝑑1− , 𝑃2 𝑑2− , 𝑃3 𝑑3+ , 𝑃4 𝑑4+
▪ Addition of a fifth-priority goal: “important to achieve the goal for
mugs and bowls”
▪ 𝑥1 + 𝑑5− = 30 bowls
▪ 𝑥2 + 𝑑6− = 20 mugs
▪ minimize 𝑃1 𝑑1− , 𝑃2 𝑑2− , 𝑃3 𝑑3+ , 𝑃4 𝑑4+ , 4P5 d− −
5 + 5P5 d6

▪ Two or more goals at the same priority level can be assigned weights to
indicate their relative importance

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Management Science Multi Criteria Decision Making

Alternative Forms of Goal Constraints

Complete Model with Added New Goals:

Minimize P1d1-, P2d2-, P3d3+, P4d4+, 4P5d5- + 5P5d6-
subject to:
x1 + 2x2 + d1- - d1+ = 40
40x1 + 50x2 + d2- - d2+ = 1,600
4x1 + 3x2 + d3- - d3+ = 120
d1+ + d4- - d4+ = 10
x1 + d5- = 30
x2 + d6- = 20
x1, x2, d1-, d1+, d2-, d2+, d3-, d3+, d4-, d4+, d5-, d6-  0

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Management Science Multi Criteria Decision Making

Graphical Interpretation

Minimize P1d1-, P2d2-, P3d3+, P4d1+

subject to:
x1 + 2x2 + d1- - d1+ = 40
40x1 + 50 x2 + d2 - - d2 + = 1,600
4x1 + 3x2 + d3 - - d3 + = 120
x1, x2, d1 -, d1 +, d2 -, d2 +, d3 -, d3 +  0

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Management Science Multi Criteria Decision Making

Graphical Interpretation
▪ First priority goal: minimize 𝒅−
𝟏

Minimize P1d1-, P2d2-, P3d3+, P4d1+

subject to:
x1 + 2x2 + d1- - d1+ = 40
40x1 + 50 x2 + d2 - - d2 + = 1,600
4x1 + 3x2 + d3 - - d3 + = 120
x1, x2, d1 -, d1 +, d2 -, d2 +, d3 -, d3 +  0

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Management Science Multi Criteria Decision Making

Graphical Interpretation
▪ Second priority goal: minimize 𝒅−
𝟐

Minimize P1d1-, P2d2-, P3d3+, P4d1+

subject to:
x1 + 2x2 + d1- - d1+ = 40
40x1 + 50 x2 + d2 - - d2 + = 1,600
4x1 + 3x2 + d3 - - d3 + = 120
x1, x2, d1 -, d1 +, d2 -, d2 +, d3 -, d3 +  0

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Management Science Multi Criteria Decision Making

Graphical Interpretation
▪ Third priority goal: minimize 𝒅+
𝟑

Minimize P1d1-, P2d2-, P3d3+, P4d1+

subject to:
x1 + 2x2 + d1- - d1+ = 40
40x1 + 50 x2 + d2 - - d2 + = 1,600
4x1 + 3x2 + d3 - - d3 + = 120
x1, x2, d1 -, d1 +, d2 -, d2 +, d3 -, d3 +  0

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Management Science Multi Criteria Decision Making

Graphical Interpretation
▪ Fourth priority goal: minimize 𝒅+
𝟏

Minimize P1d1-, P2d2-, P3d3+, P4d1+

subject to:
x1 + 2x2 + d1- - d1+ = 40
40x1 + 50 x2 + d2 - - d2 + = 1,600
4x1 + 3x2 + d3 - - d3 + = 120
x1, x2, d1 -, d1 +, d2 -, d2 +, d3 -, d3 +  0

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Management Science Multi Criteria Decision Making

Graphical Interpretation
▪ Goal programming solutions do not always achieve all goals and they
are not optimal; they achieve the best or most satisfactory solution
possible

Minimize P1d1-, P2d2-, P3d3+, P4d1+

subject to:
x1 + 2x2 + d1- - d1+ = 40
40x1 + 50 x2 + d2 - - d2 + = 1,600
4x1 + 3x2 + d3 - - d3 + = 120
x1, x2, d1 -, d1 +, d2 -, d2 +, d3 -, d3 +  0

Solution: x1 = 15 bowls
x2 = 20 mugs
d1+ = 15 hours

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Management Science Multi Criteria Decision Making

Goal Programming Exercise

Public relations firm survey interviewer staffing requirements
determination
▪ One person can conduct 80 telephone interviews or 40 personal
interviews per day.
▪ $50/day for telephone interviewer; $60/day for personal interviewer.
▪ Goals (in priority order):
▪ At least 3,200 total interviews conducted.
▪ Interviewer conducts only one type of interview each day; maintain daily budget
of $3,000.
▪ No more than 1,200 interviews should be by telephone.
Formulate and solve a goal programming model to determine number of
interviewers to hire in order to satisfy the goals

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Management Science Multi Criteria Decision Making

Analytical Hierarchy Process (AHP)

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Management Science Multi Criteria Decision Making

Analytical Hierarchy Process (AHP) Overview

▪ Method for ranking several decision alternatives and selecting the best
one when the decision maker has multiple objectives, or criteria, on
which to base the decision
▪ The decision maker makes a decision based on how the alternatives
compare according to several criteria
▪ The decision maker will select the alternative that best meets the
decision criteria
▪ A process for developing a numerical score to rank each decision
alternative based on how well the alternative meets the decision
maker’s criteria

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Management Science Multi Criteria Decision Making

AHP Example
▪ Southcorp Development Company shopping mall site selection
problem
▪ Three potential sites:
▪ Atlanta
▪ Birmingham
▪ Charlotte
▪ Criteria for site comparisons:
▪ Customer market base
▪ Income level
▪ Infrastructure
▪ Transportation

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Management Science Multi Criteria Decision Making

Hierarchy Structure
▪ Top of the hierarchy
▪ The objective (select the best site)

▪ Second level
▪ How the four criteria contribute to the objective

▪ Third level
▪ How each of the three alternatives contributes to each of the four criteria

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Management Science Multi Criteria Decision Making

General Mathematical Process

▪ Mathematically determine preferences for sites with respect to each
criterion
▪ Mathematically determine preferences for criteria (rank order of
importance)
▪ Combine these two sets of preferences to mathematically derive a
composite score for each site
▪ Select the site with the highest score

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Management Science Multi Criteria Decision Making

Pairwise Comparisons
▪ In a pairwise comparison, two alternatives are compared according to
a criterion and one is preferred

▪ A preference scale assigns numerical values to different levels of

performance

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Management Science Multi Criteria Decision Making

Pairwise Comparisons
▪ Preference scale for pairwise comparisons

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Management Science Multi Criteria Decision Making

Pairwise Comparison Matrix

▪ A pairwise comparison matrix summarizes the pairwise comparisons
for a criteria

Customer Market
Site A B C
A 1 3 2
B 1/3 1 1/5
C 1/2 5 1

Income Level Infrastructure Transportation

 1  
A 

1 6 3  1 1
3
1  
 1 1
3
1 
2 
  
     
B 1 1 1   3 1 7   3 1 4 
 6 9    
     
C 3 9 1   1 1 1   2 1 1 
   7   4 
 

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Management Science Multi Criteria Decision Making

Developing Preferences Within Criteria

▪ In synthesization, decision alternatives are prioritized within each
criterion
Customer Market
Site A B C
A 1 3 2
B 1/3 1 1/5
C 1/2 5 1
11/6 9 16/5

Customer Market
Site A B C
A 6/11 3/9 5/8
B 2/11 1/9 1/16
C 3/11 5/9 5/16

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Management Science Multi Criteria Decision Making

Developing Preferences Within Criteria

▪ The row average values represent the preference vector
▪ Normalized matrix with row averages

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Management Science Multi Criteria Decision Making

Developing Preferences Within Criteria

▪ Preference vectors for other criteria are computed similarly, resulting
in the preference matrix
▪ Criteria preference matrix

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Management Science Multi Criteria Decision Making

Ranking the Criteria

▪ Pairwise Comparison Matrix

Criteria Market Income Infrastructure Transportation

Market 1 1/5 3 4
Income 5 1 9 7
Infrastructure 1/3 1/9 1 2
Transportation 1/4 1/7 1/2 1
▪ Normalized matrix for criteria with row averages

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Management Science Multi Criteria Decision Making

Ranking the Criteria

▪ Preference Vector for Criteria:


Market  0.1993
 

Income  0.6535
 

Infrastructure  0.0860
 
 
Transportation 

0.0612

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Management Science Multi Criteria Decision Making

Developing an Overall Ranking

Overall Score:

Site A score = .1993(.5012) + .6535(.2819) + .0860(.1790) + .0612(.1561) = .3091

Site B score = .1993(.1185) + .6535(.0598) + .0860(.6850) + .0612(.6196) = .1595

Site C score = .1993(.3803) + .6535(.6583) + .0860(.1360) +.0612(.2243) = .5314

Overall Ranking: Site Score

Charlotte 0.5314
Atlanta 0.3091
Birmingham 0.1595
1.0000
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Management Science Multi Criteria Decision Making

Summary of Mathematical Steps

1. Develop a pairwise comparison matrix for each decision alternative
for each criteria
2. Synthesization
▪ Sum each column value of the pairwise comparison matrices
▪ Divide each value in each column by its column sum
▪ Average the values in each row of the normalized matrices
▪ Combine the vectors of preferences for each criterion
3. Develop a pairwise comparison matrix for the criteria
4. Compute the normalized matrix
5. Develop the preference vector
6. Compute an overall score for each decision alternative
7. Rank the decision alternatives

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Management Science Multi Criteria Decision Making

Consistency
▪ Consistency Index (CI)
▪ Check for consistency and validity of multiple pairwise comparisons
▪ Example
• Southcorp’s consistency in the pairwise comparisons of the 4 site selection criteria

Market Income Infrastructure Transportation Criteria

Market 1 1/5 3 4 0.1993

Income 5 1 9 7 0.6535
X
Infrastructure 1/3 1/9 1 2 0.086
Transportation 1/4 1/7 1/2 1 0.0612

(1)(0.1993) + (1/5)(0.6535) + (3)(0.0860) + (4)(0.0612) = 0.8328

(5)(0.1993) + (1)(0.6535) + (9)(0.0860) + (7)(0.0612) = 2.8524
(1/3)(0.1993) + (1/9)(0.6535) + (1)(0.0860) + (2)(0.0612) = 0.3474
(¼ )(0.1993) + (1/7)(0.6535) + (½ )(0.0860) + (1)(0.0612) = 0.2473

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Management Science Multi Criteria Decision Making

Consistency
▪ Step 2
▪ Divide each value by the corresponding weight from the preference vector and
compute the average
0.8328/0.1993 = 4.1786
2.8524/0.6535 = 4.3648
0.3474/0.0860 = 4.0401
0.2473/0.0612 = 4.0422
16.257
Average = 16.257/4
= 4.1564
▪ Step 3
▪ Calculate the Consistency Index (CI)

CI = (Average – n)/(n-1), where n is number of items compared

CI = (4.1564-4)/(4-1) = 0.0521
(CI = 0 indicates perfect consistency)

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Management Science Multi Criteria Decision Making

Consistency
▪ Step 4
▪ Compute the Ratio CI/RI where RI is a random index value obtained from
following table

n 2 3 4 5 6 7 8 9 10
RI 0 0.58 0.90 1.12 1.24 1.32 1.41 1.45 1.51

▪ CI/RI = 0.0521/0.90 = 0.0580

▪ Degree of consistency is satisfactory if CI/RI < 0.10

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Management Science Multi Criteria Decision Making

Q&A

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