multifactor decision making

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Multifactor DecisionMaking

Jaco [email protected]


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FIAP 271

Consistency

Final Decision

AHP Explained

Todays Agenda

Engineeringvs

Management

Objectives

Decision Hierarchy

Pair-wise comparisons

Consistency

Workspace

Pair-wise comparison

Decision Making

MFEP Explained

Application

Opening Screen

Selection


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Objectives

Define and describe

2 types

of scoringmodels.

Use

multi

-

factor scoring

methods to make

decision choices.

Describe how

Analytical Hierarchy Process

can be used to make decision choices.

Understand and use

consistency statistics

to support AHP results.

Understand how

spreadsheets

can be used

to model AHP decision problems.


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Management or Engineering?


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Decision Making

Many decisions may involve a number offactors to consider.

E.g. applying for a new job has many thingsto consider.

Salary,Career opportunities,

Location, etc

Or purchasing a new PC has many factors.Processor speed,

Memory,

Backup service, etc


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Multi-Factor Decision Making

Multifactor Evaluation Process (MFEP)

A more quantitative approach.

Important factors are given an appropriate

weight (relative importance).Each alternative is then evaluated against

these factors.

Totals are added up.

The alternative with the highest score wins.


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Example: Job Application

Alternatives to consider:

Alternative Action Co

Engineering Systems Design Ltd

Product Wiring Inc

Important Factors:

Starting salary

Career opportunitiesLocation


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Factor Weights

Factor Importance (Weight)

Salary 0.3Career Advancement 0.6

Location 0.1

Various factors are weighted according toimportance.

Salary: 0.3

Career advancement opportunities: 0.6

Location: 0.1Important: weights must add up to 1


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Factor Evaluations

Factor AA Co EDS Ltd PW Inc

Salary 0.7 0.8 0.9Career Advancement 0.9 0.7 0.6

Location 0.6 0.8 0.9

Each alternative is given a rating for each

factor considered on a scale of 0 to 1.


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Factor and Alternative

Comparison

With this information it is possible to determine

total weighted evaluation for each alternative.

Each company is given a factor evaluation for

each factor.Factor weights are multiplied by factor

evaluations and added up to get a total

weighted evaluation for each company.

The highest score wins.


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Break down a big problem into smalldigestible bites.

Prioritise alternatives in decision making

Streamline human decision processes

Easy to use

Well accepted in industry by decision makers

Can be used for multiple decision problems

Very controversial


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Where many factors are to be evaluatedaccurately, a more scientific approach isneeded.

Analytical Hierarchy Process* involves pair-wise comparisons.

Start by laying out the overall hierarchy of thedecision.

Pair-wise comparison reveals factor weightsand factor evaluations.

Ensure that comparisons are consistent.

* Saaty TL, 1980, The Analytic Hierarchy Process.


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Example: To Buy a Computer

Alternatives:

System 1

System 2

System 3Selection Criteria:

Hardware

SoftwareVendor


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2. Pair-wise Comparison

Intensity ofImportance

Definition Explanation

1 Equally preferred Two activities contribute equally to theobjective

3 Moderately Preferred Experience and judgment slightly favourone activity over another

5

Strongly preferred Experience and judgment strongly or

essentially favour one activity over

another

7 Very strongly preferred An activity is strongly favoured and itsdominance demonstrated in practice

9 Extremely preferred The evidence favouring one activity overanother is of the highest possible order

of affirmation

2, 4, 6, 8 Intermediate values between the twoadjacent judgments

When compromise is needed

Reciprocals of

above nonzero

If activity i has one of the above nonzero numbers assigned to it when

compared with activity j, then j has the reciprocal value when compared with i.


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Consider the following criteria:

1) Compare to

Which is more important?

Say Software Slightly

Hardware Software Vendor

Hardware Software

Hardware Software


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3. Ranking Table

Make a matrix from above comparisons.If judgement value on left from 1, enter actual value.

If judgement value on right from 1, enter reciprocal

value.


Hardware 1 1/3 5

Software 1 7

Vendor 1

Hardware Software

VendorHardware

Software Vendor

Its matrix

algebra time!


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3. Ranking Table

To fill in the lower triangular matrix, use thereciprocals of the upper diagonal.

aij = 1/aji


Hardware 1 1/3 5

Software 3 1 7

Vendor 1/5 1/7 1


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3. Ranking Table

Add columns togetherHardware Software Vendor

Hardware 1 0.3333 5

Software 3 1 7

Vendor 0.20 0.1429 1

TOTAL 4.20 1.4762 13


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5. Consistency

Have we been consistent in our pair-wisecomparisons?

Consistency ratio is calculated from 4 values:

Consistency vector (CV)Lambda ()

Random index (RI) (read from a table)

Consistency index (CI) (n = no. of variables)

Consistency Ratio (CR)

If CR < 0.10 then our comparisons were

consistent

CI = n

n 1

CR = CIRI


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6. System Selection

Now follow the same procedure to measureeach selection criterion to each alternative

system.


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M Ab t AHP


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More About AHP

It allows multi criteria decision making.Becomes difficult to use when number of criteria oralternatives is high, e.g. higher than 7.

Allows for qualitative as well as quantitative

decision evaluation.Applicable for group decision makingenvironments.

Hidden assumptions like consistency.

Can be cumbersome.Adding or removing a criterion calls for new evaluation.

If consistency does not fit, repeat the evaluation.


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And The Final Outcome


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And The Final Outcome

Options are

Ranked

Highest

Consistency Ratio


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References


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References

Saaty, TL: The Analytic Hierarchy Process;1980.

Render, B; Stair RM: Quantitative Analysis forManagement; 9th Ed;Allyn & Baker.

Triantaphyllou, E; Mann, SH: Using theAnalytic Hierarchy Process for DecisionMaking in Engineering Applications: SomeChallenges; International Journal of IndustrialEngineering: Application and Practice; Vol. 2,

No. 1, pp 35-44; 1995

multifactor decision making

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