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PCT2010 - 5 Min - Analytic Hierarchy Process

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Aldis Levalds talks about AHP which is a method of multi-criteria decision making

Aldis Levalds talks about AHP which is a method of multi-criteria decision making

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  • 1. Analytic Hierarchy Process
    A generic multi-criteria decision making process
    Aldis@sharepointconsultingservices.com
  • 2. Dr. Thomas Saaty (lifetime of work)
    Simple yet mathematically sound
    Uses psychology, pairwise comparisons
    Combines subjective and objective criteria
    Rational and consistent
    Analytic Hierarchy Process (AHP)
  • 3. Choice
    Ranking
    Prioritization
    Resource Allocation
    Benchmarking
    Quality Mgmt
    Many Applications
    2007 International AHP Symposium includes 90 papers from 19 countries
  • 4. Recent Examples
    Deciding how best to reduce the impact of global climate change (Fondazione Eni Enrico Mattei)[5]
    Quantifying the overall quality of software systems (Microsoft Corporation)[6]
    Selecting university faculty (Bloomsburg University of Pennsylvania)[7]
    Deciding where to locate offshore manufacturing plants (University of Cambridge)[8]
    Assessing risk in operating cross-country petroleum pipelines (American Society of Civil Engineers)[9]
    Deciding how best to manage U.S. watersheds (U.S. Department of Agriculture)[4]
  • 5. In 2008, The Institute for Operations Research and Management Sciences awarded Thomas L. Saaty the INFORMS Impact Prize for his development of the Analytic Hierarchy Process
    It’s been around for a while AND..
  • 6.
    • What is the decision we need to make?
    Prioritize our customers and allocate R&D budgets accordingly.
    • What are the alternatives or choices?
    Customers were segmented into 12 categories.
    • What are the possible criteria to judge?
    Five key criteria where developed for judgment
    • Determine importance weighting for criteria
    Pairwise comparisons using relative scale
    • Measure alternatives against criteria
    Real current annual revenue and experts for subjective criteria
    • Compute the priorities and make selection
    Allocate budgets according to priorities, sensitivity analysis showed new markets score low
    Decision Making Steps
  • 7. Most accurate way for humans to judge (5-9 max)
    Relative Judgement Scale used
    These numbers and words are based on empirical research over 25 years
    Pairwise Comparisons
  • Criteria Weightings
    Software programs are available but simple approximation methods can also be used
  • 12. Revenue Example:
    Quantitative Judgments
    Current Revenue
    Normalized
  • 13. Strategic Importance Example:
    Qualitative Judgments
    Expert Judgment
    Normalized
    Absolute Judgement Scale
  • 23. Prioritizing Market Segments
    3rd
    4th
    1ST
    2nd
    • Most Important Segment C should get 30% of resources
    • 24. Segment D is twice as important than Segment B
  • Analytic Hierarchy Process
    A generic multi-criteria decision making process
    Aldis@sharepointconsultingservices.com

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