How the Analytical Hierarchy Process Enables Better Decision-Making

The Analytical Hierarchy Process (AHP) is a method of decision-making that provides a way for organizations or individuals to place calculated weights and importance on various options. By quantifying the essential criteria, the final decision is often easier to see than simply trying to make sense of varying levels of importance and preference alone.

The Analytical Hierarchy Process was developed in the 1960s by Thomas Saaty, who was a pioneer of Operations Research and authored numerous books on the subject. At the time, Saaty was working with the U.S. Department of State as a research director for the Arms Control and Disarmament Agency. Saaty had a disappointing experience in this capacity after hiring a few leading experts and subsequently being disappointed with the team’s results.

Later, while teaching at the Wharton School of Business, Saaty recognized the need for a practical and systematic approach to decision-making; thus, the Analytical Hierarchy Process was born. Today, AHP is a widely accepted decision-making application used throughout the information technology industry. It’s also a standard practice utilized by the Central Intelligence Agency and a practical theory taught in universities throughout the United States.

 

Uses for AHP

AHP has many useful applications in both business and everyday situations. For instance, it’s been used in healthcare settings to determine the most favorable course of treatment for complex conditions. It has also been used by NASA, Xerox, General Motors, the U.S. Navy and many more. In virtually any situation requiring the analysis of multiple criteria and alternative solutions, AHP can provide a quantitative evaluation to determine the most favorable options.

AHP is usable in any situation requiring:

  • Conflict resolution
  • Decision-making
  • Prioritizing
  • Ranking

Here are a few examples which illustrate the broad uses of AHP:

  • Which candidate should I hire for this position? Or alternatively, which position should I accept?
  • Which breed of dog is the right choice for my family?
  • Which college should I attend? Which course of study should I pursue?
  • Which platform should I use to build a website?
  • Which company is best to handle the IT needs of my organization?
  • Which advertising campaign should we choose?

 

The Structure of AHP

To use AHP to aid decision-making, or to rank or prioritize options, you must start with a defined objective, criteria of importance and alternative options. These three factors will represent three different levels in the hierarchy.

To visualize the problem, create a flowchart representing the factors involved.

Level I: The Objective

  • Hire the Best Employee

Level II: The Criteria

  • Pay Requirements
  • Education
  • Experience

Level III: The Alternatives

  • Anne
  • Mark
  • Susan

Once you’ve created this visual representation, you’ll want to assign a relative importance to each criterion using pair-wise comparisons. For instance:

  • Education is twice as important as pay requirements.
  • Experience is three times as important as pay requirements.
  • Experience is twice as important as education.

Note that this step involves using your judgment and personal preferences. That’s the premise behind AHP—you’re simply objectifying the process of determining the final decision by assigning quantitative values to represent your preferences.

Now, you’ll need to put these values in a matrix to conduct a pair-wise comparison. This is expressed as a ratio, or fraction, and then converted to a decimal.

 

The Eigenvector Solution

To convert these figures into a reliable way to determine the best decision, you’ll use the Eigenvector Solution. This will result in a ranking, illustrating the best choice among your alternatives based on a mathematical calculation which squares the matrix successively. This is done by summing the values in each row and normalizing the result. The same process is followed again and again until the difference between two subsequent sums is less than a specified value, often 1.0.

Finally, when you’re finished with the Analytical Hierarchy Process, the candidate with the highest Eigenvector score is the best candidate to hire based on the importance of the hiring criteria you selected at the start.

 

Tools and Apps for AHP Calculations

Fortunately, you don’t need to manually calculate all of those algebra equations. There are tools and resources online that allow you to input data to determine rankings or prioritize options for just about any decision you want to make.

Whether you’re a scientist trying to decide which procedure to use in an experiment, a college student wanting a reliable method for deciding upon a course of study, a doctor wanting to know the best course of treatment for a patient, or a family trying to decide which breed of dog would best suit you, you can find practical uses for AHP just about anywhere. The usefulness of this process in decision-making is endless, whether you’re NASA, the Central Intelligence Agency or just a regular person who wants a more reliable way to organize your thoughts and preferences.

 

 

Resources:

http://colorado.edu/geography/leyk/geog_5113/readings/saaty_2008.pdf

http://en.wikipedia.org/wiki/Analytic_hierarchy_process

http://www.boku.ac.at/mi/ahp/ahptutorial.pdf

http://www.johnsaunders.com/papers/ahpexpo.pdf

http://www.ncbi.nlm.nih.gov/pubmed/18295623

http://easycalculation.com/matrix/square-matrix.php

http://rad.ihu.edu.gr/fileadmin/labsfiles/decision_support_systems/lessons/ahp/AHP_Lesson_1.pdf

http://www.healthstrategy.com/ahp/ahp.htm

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