What is the analytic hierarchy process?
AHP (standing for the analytic hierarchy process is considered as an organized and systematic decision-making method proposed by Thomas L. Saaty. The aim of AHP method is to handle the complicated decisions by decomposing them into a structure arranged in a hierarchy of criteria and alternatives, enabling decision-makers to assess and rank them based on their relative importance.
Components and stages associated with AHP method:
1. The establishment of hierarchy :
The decision problem is broken down into a hierarchical structure divided into three main levels: the objective, criteria, and alternatives. The objective reflects the overall purpose, the criteria are the factors contributing to the decision, and alternatives are the considered options considered.
2. Pairwise comparisons:
Pairwise comparisons among all elements at three main levels of a structure arranged in a hierarchy are carried out by the decision-makers. . For the criteria level involves comparing each criterion with every other so as to assess its relative importance. Pairwise comparisons are usually performed by using a scale representing the preference of one element over others.
3. Establishment of judgments:
As shown in the pairwise comparisons, decision-makers determine the value judgments to reflect the relative importance or preference of each element over others. These numerical values can be employed to generate the pairwise comparison matrix (PCM) simply as a square matrix.
4. Checking the Consistency:
The AHP method involves checking the consistency to guarantee that the decision-makers’ judgments, which are logical, do not seem to be contradictory.. AHP consistency ratio of Saaty is considered as a measure of the consistency of the judgments. If the judgments are opposed and do not match,, the revision process performed by the decision-makers may be necessary for their comparisons.
5. The computation of Eigenvectors and Eigenvalues:
The PCM can be employed to compute both the principal eigenvector and eigenvalue. The eigenvector of a square matrix reflects the relative weights of the elements of the various levels obtained from of a structure arranged in a hierarchy.
The normalized eigenvector of a square matrix guarantees that the sum of its components is equivalent to 1. This stage leads to a set of weights representing the relative importance of all elements in hierarchical decision-making process..
The normalized weights can be aggregated by a structure arranged in a hierarchy to assign the overall priorities of the alternatives in terms of objective. .
8. Sensitivity analysis:
AHP makes a possibility for sensitivity analysis to evaluate the effects of changes made in judgments or criteria weights with respect to the final priorities. This can assist decision-makers to obtain a clear understanding of the robustness of their decisions.
9. Final decision and ranking:
The process results in a final set of priorities and the ranking of the alternatives, enabling decision-makers to make the reasoned decisions based on a systematic and organized method.
AHP has a wide range of applications in many fields, such as business, engineering, healthcare, and public policy, where a complex decision-making process involves a multitude of criteria and alternatives. It presents a rational approach which clear and easy to understand for decision-making process, making it easier for people or groups to understand the complicated decision scenarios.
History of AHP method
In the 1970s, Dr. Thomas L. Saaty, who was an American mathematician and operations researcher, developed the AHP. He considered the AHP method as a decision-making method aiming at exploring the complicated problems involving a multitude of criteria and alternatives. The basis or groundwork on AHP is described in a book entitled “The Analytic Hierarchy Process,” written by Saaty and published in 1980.
Applications of AHP
AHP is considered as a decision-making approach that can cover a wide range of applications in both industries and job roles. . Here there are some certain job roles and fields where AHP is widely used for decision-making process:
The AHP method can assist people who are the professional in the field of project management to prioritize and choose the projects based on criteria, including cost, time, and logical possibility.
Supply Chain Managers
The AHP method cab be employed by the professional individuals who are in charge of every stage of an organization’s supply chain for the selection of supplier, the optimization of logistics, and making the decisions related to the procurement process.
Product managers can utilize the AHP method for making the decisions associated with developing the product , prioritizing the feature, and positioning the market.
The AHP method allows for financial analysts to manage the portfolio, make the investment decision, and assess the risk.
Human Resource (HR) Professionals
The AHP method is used in HRs for tasks, including the assessment of employee performance, employment, and attracting, developing and retaining valuable employees.
Professionals working in marketing employ the AHP method to segment the market, determine the products’ position in the minds of consumers, and make strategic marketing decisions.
Quality Assurance Specialists
The AHP method can assist quality assurance specialists to evaluate and promote product or service quality via determining the criteria related to quality according to their relative importance.
The AHP method can be employed by risk managers for assessing the risk, prioritizing , and developing risk reduction strategies.
In healthcare, administrators can apply the AHP method to make the decision associated with allocation of resources, treatment options, and organizing the facilities ..
Environmental analysts employed the AHP method to assess environmental effects and make the decisions associated with sustainable practices.
The AHP method is employed by the educational administrators to assess the faculty performance, design the curriculum, and allocate the resources.
The AHP method can help technology managers to assess and prioritize and invest in technology based on factors, including cost, compatibility, and the process of strategic alignment.
The AHP method is employed by operations managers to make the decisions associated with optimizing the process, allocating resources, and improving the effectiveness .
Consultants working in different domains use the AHP method to help their clients make strategic decisions.
AHP method is employed in government planning to make the decisions associated with public projects, the development of a country’s infrastructure, and the allocation of resources.
AHP method is employed by facility managers to make the decisions associated with organizing the facilities, prioritizing the maintenance, and allocating the resources.
Which businesses and industries can use the AHP method ?
AHP as a versatile decision-making method can be employed by a wide range of businesses and industries. In the following, there are several examples of businesses where AHP method can be useful:
1. Manufacturing Companies:
• AHP method can be employed by a manufacturing company to make the decisions related to the optimization of process, selection of equipment, and control of quality.
• Retail businesses can used AHP method for the process of planning the assortment of products, management of inventory, and selection of supplier.
3. Financial Institutions:
• Both banks and financial institutions can utilize the AHP method for management of investment portfolio, the evaluation of risk, and processes of loan approval.
4. Healthcare Organizations:
• The AHP method can be employed by both hospitals and healthcare providers to make decisions related to allocating the resources, preparing equipment, and choosing the treatment protocol.
5. Construction Companies:
• The AHP method can be used by construction companies for selecting a project, assessing a contractor, and making the decisions on material procurement.
6. Technology Companies:
• AHP method is considered as a useful method for technology companies to make decisions on developing a product, prioritizing the feature, and investing in technology.
7. Educational Institutions:
• AHP method can be employed by both universities and schools to evaluate the faculty performance, plan the curriculum, and allocate the resources.
8. Government Agencies:
• AHP method can be used by government entities can to make the decisions on public projects, develop an infrastructure, and formulate a policy.
9. Consulting Firms:
• Consulting firms can employ the AHP method to help their clients make strategic decisions on a wide range of domains, including strategies of market entry and optimization of process.
10. Energy Companies:
• AHP method can be used by energy companies for making decisions on the exploration of energy resources, maintenance of facility, and evaluation of environmental effects.
11. Insurance Companies:
• Insurance companies can use AHP method for making the underwriting decisions, assessing the risk, and developing a product.
12. Agricultural Businesses:
• AHP method can be employed by agricultural businesses to make the decisions on the selection of a crop, techniques of irrigation, and allocation of resources.
13. Transportation and Logistics Companies:
• AHP is beneficial l for transportation companies to make the decisions on optimizing a route plan , managing the fleet, and selecting the supplier.
14. Pharmaceutical Companies:
• AHP method can be applied by pharmaceutical companies to make the decisions on the development of a new medicine, research prioritization, and the planning of clinical trial.
15. Hospitality Industry:
• Both hotels and restaurants can employ the AHP approach to make decisions on menu planning, the promotion of service quality, and facility upgrades and modification.
16. Environmental Organizations:
• The AHP method can be used by the environmental organizations to make decisions on conservation projects, evaluation of environmental effects , and practices of sustainability .
These examples show a broad range of industries and businesses that can receive an advantage due to employing the AHP as an organized decision-making method. AHP method is particularly efficient in situations where there are a multitude of criteria and alternatives that should to be considered at the same time.
Who developed the AHP method?
The Dr. Thomas L. Saaty, who was an American mathematician and operations researcher, developed AHP method. He is widely regarded as the pioneer and a major figure behind developing AHP method. He presented the AHP method in the 1970s and later expanded its principles in his influential book entitled “The Analytic Hierarchy Process,” published in 1980.
Dr. Thomas L. Saaty died in 2017, but his work contributing to the decision sciences, operations research, and the development of AHP continue to have a considerable influence. Dr. Saaty is often referred to as the creator of the AHP approach. His research laid the first stone of the systematic and organized method that AHP presents to decision-making process in the complicated scenarios involving several criteria and alternatives.
The advantages of the AHP method
The AHP method (is frequently utilized for making the decisions in a wide range of fields for several reasons:
1. Structured Decision-Making:
• The AHP method presents s an organized and systematic framework for decision-making process. It helps decompose the complicated problems into a hierarchy of criteria and alternatives, making the decision process more structured and manageable.
2. Handling Complex Decisions:
• The AHP method is particularly beneficial l when addressing the complicated decisions involving multiple criteria and alternatives. It enables decision-makers to evaluate and prioritize factors contributing to the decision-making process in a holistic manner.
• AHP is considered as a flexible method that can be used in a board range of decision problems in various domains, such as business, engineering, healthcare, and public policy. Its versatility makes it useful for a wide range of decision scenarios.
4. Incorporating Stakeholders’ Preferences:
• The AHP method enables the decision-makers to incorporate the subjective judgments and preferences of stakeholders via performing pairwise comparisons. This feature is useful when addressing qualitative aspects of criteria related to a decision.
5. Quantifying Subjective Judgments:
• AHP uses a mathematical model to measure the subjective judgments. Decision-makers can introduce a level of objectivity to the decision-making process via allocating numerical values to pairwise comparisons.
6. Consistency Checks:
• AHP method involves the mechanism of checking the consistency check to guarantee that the judgments made by decision-makers are reasoned and do not seem to be contradictory. This helps increase the reliability of results obtained from the decision-making process.
7. Prioritization and Ranking:
• AHP presents a transparent method for determining both the criteria and alternatives according to their relative importance. The outcome is a set of rankings that assist the decision-makers to concentrate on the most key factors and options.
8. Transparency and Communication:
• Transparency in decision-making process can be obtained from a hierarchical structure and step-by-step process of the AHP method. It enables the decision-makers to communicate their thought process and reasoning efficiently.
9. Sensitivity Analysis:
• The AHP method allows for sensitivity analysis, enabling decision-makers to evaluate the effects of changes made in judgments or criteria weights on the final outcomes. This helps understand the robustness of the results obtained from the decision-making process..
10. Expert Engagement :
• The AHP method facilitates the engagement of both experts and stakeholders in the decision-making process. It is considered as a collaborative tool that encourages both group decision-making model and consensus-building technique.
11. Applications Across Industries:
• The AHP method has been successfully applied by many industries, such as finance, healthcare, engineering, environmental management, etc. It has broad applicability, making it a go-to method for decision problems in the different contexts.
12. Decision Support:
• AHP is not only a decision-making technique but also a decision support tool. It assists the s decision-makers to make more informed and rational decisions via presenting an organized and logical method.
In conclusion, the AHP method can handle the complexity, incorporate both qualitative and quantitative aspects, and offer a transparent and organized framework to make decisions in a wide range of fields and industries.