MULTI CRITERIA

DECISION MAKING (MCDM)

 MCDA or MCDM

 MCDA involves “making preference decisions (such as

evaluation, prioritization, selection) over the available
alternatives that are characterized by multiple, usually
conflicting, attributes”
Hwang C. L., Yoon K., “Multiple Attribute Decision Making:
Methods and Applications“, Berlin/Heidelberg/New-York: Springer Verlag, 1981
 Examples: Multi-Criteria Problems

 Locating a nuclear power plant involves

objectives such as:

 Safety
 Environment
 Cost
 Examples: Multi-Criteria Problems

 In a case study on the management of R&D

research (Moore et. al 1976), the following
objectives have been identified:

 Profitability
 Growth and diversity of the product line
 Increased market share
 Maintained technical capability
 Firm reputation and image
 Examples: Multi-Criteria Problems

 In determining an electric route for power

transmission in a city, several objectives could be
considered:

 Cost
 Health
 Reliability
 Importance of areas
 Examples: Multi-Criteria Problems

 In selecting a major at IIMK, several

objectives can be considered. These objectives
or criteria include:

 Job market upon graduation

 Job pay and opportunity to progress
 Interest in the major
 Likelihood of success in the major
 Future job image
 Parent wish
 Multicriteria Decision Making
(MCDM)

 Goal Programming:

 Formulation and Graphical Solution

 Scoring Models

 Analytic Hierarchy Process (AHP)

 Pareto Optimality

 What that means is, there is no

mathematical “best” point along the
Pareto front. Actual people would
have to get together and figure out
how they wanted to balance their
priorities.
 Using the slope, we can find some
Pareto optimal solutions
 Pareto Improvements

 Another implication of the Pareto

front is that any point in the
feasible region that is not on the
Pareto front is a bad solution.
 Recall that an improvement that
helps one objective without
harming the other is called a
Pareto improvement.
Is the above one Pareto improvement? No
 Pareto Curves and Solutions

 When there is an obvious solution, Pareto curves

will find it. Here are two examples:

The blue point minimizes both Although orange is on the Pareto front,
f1 and f2 . There is only one moving to purple costs very little f2 for
Pareto-optimal solution. huge gains in f1
 Goal Programming Versus
Linear Programming
 A variation of linear programming that allows multiple
objectives (goals)—soft (goal) constraints or a combination of
soft and hard (nongoal) constraints - that can deviate,
allowing for tradeoffs rather than only optimal solutions.
 GP models are similar to LP models in that both are
formulated under the same requirements and assumptions
(e.g., linearity, nonnegativity, certainty).
 Weighted vs. Preemptive
Goal Programming
 Weighted goal programming is designed for problems where all
the goals have been assigned some weights depending on situation.
 Preemptive goal programming (Lexicographic GP) is used
when there are major differences in the importance of the goals.
 The goals are listed in the order of their importance.
 It begins by focusing solely on the most important goal.
 It next does the same for the second most important goal (as is
possible without hurting the first goal).
 The same continues without hurting the previous more important
goals
 Goal Programming
 Deviational variables di+ and di- are amounts a targeted
goal i is overachieved or underachieved, respectively.
 The goals themselves are added to the constraint set with
di+ and di- acting as the surplus and slack variables.
 One approach to goal programming is to satisfy goals in a
priority sequence. Second-priority goals are pursued
without reducing the first-priority goals, etc.
 Goal Programming

 For each priority level, the objective function is to

minimize the sum of the goal deviations.
 Previous "optimal" achievements of goals are
added to the constraint set so that they are not
degraded while trying to achieve lesser priority
goals.
 Example:
Conceptual Products
Conceptual Products is a computer company that produces the
CP400 and the CP500 computers. The computers use different
mother boards produced in abundant supply by the company, but
use the same cases and disk drives. The CP400 models use two
floppy disk drives and no zip disk drives whereas the CP500 models
use one floppy disk drive and one zip disk drive.
The disk drives and cases are bought from vendors. There are 1000
floppy disk drives, 500 zip disk drives, and 600 cases available to
Conceptual Products on a weekly basis. It takes one hour to
manufacture a CP400 and its profit is $200 and it takes one and
one-half hours to manufacture a CP500 and its profit is $500.
 Example:
Conceptual Products
The company has four goals which are given below:

Priority 1: Meet a state contract of at least 200 CP400

machines weekly. (Goal 1)
Priority 2: Make at least 500 total computers weekly.
(Goal 2)
Priority 3: Make at least $250,000 weekly. (Goal 3)
Priority 4: Use no more than 400 man-hours per
week. (Goal 4)
 Example:
Conceptual Products
 Variables
x1 = number of CP400 computers produced weekly
x2 = number of CP500 computers produced weekly
di- = amount the right hand side of goal i is deficient
di+ = amount the right hand side of goal i is exceeded

 Functional Constraints
Availability of floppy disk drives: 2x1 + x2 < 1000
Availability of zip disk drives: x2 < 500
Availability of cases: x1 + x2 < 600
 Example:
Conceptual Products
 Goals
(1) 200 CP400 computers weekly:
x1 + d1- - d1+ = 200
(2) 500 total computers weekly:
x1 + x2 + d2- - d2+ = 500
(3) $250(in thousands) profit:
.2x1 + .5x2 + d3- - d3+ = 250
(4) 400 total man-hours weekly:
x1 + 1.5x2 + d4- - d4+ = 400
Non-negativity:
x1, x2, di-, di+ > 0 for all i
 Example:
Conceptual Products
 Objective Functions

Priority 1: Minimize the amount the state contract is

not met: Min d1-
Priority 2: Minimize the number under 500
computers produced weekly: Min d2-
Priority 3: Minimize the amount under $250,000
earned weekly: Min d3-
Priority 4: Minimize the man-hours over 400 used
weekly: Min d4+
 Example:
Conceptual Products
Min {P1(d1-), P2(d2-), P3(d3-), P4(d4+)}

s.t. 2x1 +x2 < 1000

+x2 < 500
x1 +x2 < 600
x1 +d1- -d1+ = 200
x1 +x2 +d2- -d2+ = 500
.2x1+ .5x2 +d3- -d3+ = 250
x1+1.5x2 +d4- -d4+ = 400
x1, x2, d1-, d1+, d2-, d2+, d3-, d3+, d4-, d4+ > 0
 Example:
Conceptual Products
 Graphical Solution, Iteration 1
To solve graphically, first graph the functional
constraints. Then graph the first goal: x1 = 200.
Note on the next slide that there is a set of points
that exceed x1 = 200 (where d1- = 0).
 Example:
Conceptual Products
Functional Constraints and Goal 1 Graphed
x2
1000 2x1 + x2 < 1000

800 Goal 1: x1 > 200

x2 < 500
600 x1 + x2 < 600

400 Points Satisfying

Goal 1
200

x1
200 400 600 800 1000 1200
 Example:
Conceptual Products
 Graphical Solution, Iteration 2
Now add Goal 1 as x1 > 200 and graph Goal 2:
x1 + x2 = 500. Note on the next slide that there is
still a set of points satisfying the first goal that
also satisfies this second goal by either meeting
or exceeding the requirements (where d2- = 0).
 Example:
Conceptual Products
 Goal 1 (Constraint) and Goal 2 Graphed
x2

1000 2x1 + x2 < 1000

800 Goal 1: x1 > 200

x2 < 500
600 x1 + x2 < 600

400 Points Satisfying Both

Goals 1 and 2
200
Goal 2: x1 + x2 > 500

x1
200 400 600 800 1000 1200
 Example:
Conceptual Products
 Graphical Solution, Iteration 3
add Goal 2 as x1 + x2 > 500 and Goal 3: .2x1 + .5x2 = 250.
Note on the next slide that no points satisfy the previous
functional constraints and goals and satisfy this
constraint.
Thus, to Min d3-, this minimum value is achieved when we
Max .2x1 + .5x2. Note that this occurs at x1 = 200 and x2 =
400, so that .2x1 + .5x2 = 240 or d3- = 10.
 Example:
Conceptual Products
Goal 2 (Constraint) and Goal 3 Graphed
x2

1000 2x1 + x2 < 1000

800 Goal 1: x1 > 200

x2 < 500
600 x1 + x2 < 600 (200,400)

400 Points Satisfying Both

Goals 1 and 2

200 Goal 2: x1 + x2 > 500

Goal 3: .2x1 + .5x2 = 250
x1
200 400 600 800 1000 1200
Scoring Models
 Scoring Models

 A subjective multicriteria method in which the decision

maker assigns weights to each criterion based on the
importance of the criterion and then assigns a rating for
each decision alternative on each criterion.
 Model outcomes are the sum of the products of the
criteria weight with the respective ratings of criteria for
that decision alternative.
 Areas of application
 Facility location
 Product selection
 Scoring Model for Job Selection

 A graduating college student with a double

major in Finance and Accounting has received
the following three job offers:
 financial analyst for an investment firm in Chicago
 accountant for a manufacturing firm in New Delhi
 auditor for a firm in London
 Scoring Model for Job Selection

 The student made the following comments:

 “The financial analyst position provides the best
opportunity for my long-run career advancement.”
 “I would prefer living in New Delhi rather than in
Chicago or London.”
 “I like the management style and philosophy at the
London firm as the best.”

 Clearly, this is a multicriteria decision problem.

 Scoring Model for Job Selection

Steps Required to Develop a Scoring Model

Step 1: List the decision-making criteria.
Step 2: Assign a weight (survey, AHP) to each criterion.
Step 3: Rate how well each decision alternative satisfies
each criterion.
Step 4: Compute the score for each decision alternative.
Step 5: Order the decision alternatives from highest score
to lowest score. The alternative with the highest
score is the recommended alternative.
 Scoring Model for Job Selection

 Mathematical Model

Sj = S wi rij
i

where:
rij = rating for criterion i and decision alternative j
Sj = score for decision alternative j
 Scoring Model for Job Selection

 Step 1: List the criteria (important factors).

 Career advancement
 Location
 Management
 Salary
 Prestige
 Job Security
 Enjoyable work
 Scoring Model for Job Selection

 Five-Point Scale Chosen for Step 2

Importance Weight
Very unimportant 1
Somewhat unimportant 2
Average importance 3
Somewhat important 4
Very important 5
 Scoring Model for Job Selection

 Step 2: Assign a weight to each criterion.

Criterion Importance
Weight
Career advancement Very important 5
Location Average importance 3
Management Somewhat important 4
Salary Average importance 3
Prestige Somewhat unimportant 2
Job security Somewhat important 4
Enjoyable work Very important 5
 Scoring Model for Job Selection

 Nine-Point Scale Chosen for Step 3

Level of Satisfaction Rating

Extremely low 1
Very low 2
Low 3
Slightly low 4
Average 5
Slightly high 6
High 7
Very high 8
Extremely high 9
 Scoring Model for Job Selection

 Step 3: Rate how well each decision alternative satisfies

each criterion.
Decision Alternative
Analyst Accountant Auditor
Criterion Chicago New Delhi London
Career advancement 8 6 4
Location 3 8 7
Management 5 6 9
Salary 6 7 5
Prestige 7 5 4
Job security 4 7 6
Enjoyable work 8 6 5
 Scoring Model for Job Selection

 Step 4: Compute the score for each decision alternative.

Decision Alternative 1 - Analyst in Chicago
Criterion Weight (wi ) Rating (ri1) wiri1
Career advancement 5 x 8 = 40
Location 3 3 9
Management 4 5 20
Salary 3 6 18
Prestige 2 7 14
Job security 4 4 16
Enjoyable work 5 8 40
Score 157
 Scoring Model for Job Selection
 Step 4: Compute the score for each decision alternative.
Decision Alternative
Analyst Accountant Auditor
Criterion Chicago New Delhi London
Career advancement 40 30 20
Location 9 24 21
Management 20 24 36
Salary 18 21 15
Prestige 14 10 8
Job security 16 28 24
Enjoyable work 40 30 25
Score 157 167 149
 Scoring Model for Job Selection

 Step 5: Order the decision alternatives from highest

score to lowest score. The alternative with the
highest score is the recommended alternative.

 The accountant position in New Delhi has the highest

score and is the recommended decision alternative.
 Note that the analyst position in Chicago ranks first
in 4 of 7 criteria compared to only 2 of 7 for the
accountant position in New Delhi.
 But when the weights of the criteria are considered,
the New Delhi position is superior to the Chicago job.
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