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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

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PCT2010 - 5 Min - Analytic Hierarchy Process

  1. 1. Analytic Hierarchy Process<br />A generic multi-criteria decision making process<br /><br />
  2. 2. Dr. Thomas Saaty (lifetime of work)<br />Simple yet mathematically sound<br />Uses psychology, pairwise comparisons<br />Combines subjective and objective criteria<br />Rational and consistent<br />Analytic Hierarchy Process (AHP)<br />
  3. 3. Choice <br />Ranking<br />Prioritization<br />Resource Allocation<br />Benchmarking<br />Quality Mgmt<br />Many Applications<br />2007 International AHP Symposium includes 90 papers from 19 countries<br />
  4. 4. Recent Examples<br />Deciding how best to reduce the impact of global climate change (Fondazione Eni Enrico Mattei)[5]<br />Quantifying the overall quality of software systems (Microsoft Corporation)[6]<br />Selecting university faculty (Bloomsburg University of Pennsylvania)[7]<br />Deciding where to locate offshore manufacturing plants (University of Cambridge)[8]<br />Assessing risk in operating cross-country petroleum pipelines (American Society of Civil Engineers)[9]<br />Deciding how best to manage U.S. watersheds (U.S. Department of Agriculture)[4]<br />
  5. 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<br />It’s been around for a while AND..<br />
  6. 6. <ul><li>What is the decision we need to make?</li></ul>Prioritize our customers and allocate R&D budgets accordingly.<br /><ul><li>What are the alternatives or choices?</li></ul>Customers were segmented into 12 categories.<br /><ul><li>What are the possible criteria to judge?</li></ul>Five key criteria where developed for judgment<br /><ul><li>Determine importance weighting for criteria</li></ul>Pairwise comparisons using relative scale<br /><ul><li>Measure alternatives against criteria</li></ul>Real current annual revenue and experts for subjective criteria<br /><ul><li>Compute the priorities and make selection</li></ul>Allocate budgets according to priorities, sensitivity analysis showed new markets score low<br />Decision Making Steps<br />
  7. 7. Most accurate way for humans to judge (5-9 max)<br />Relative Judgement Scale used<br />These numbers and words are based on empirical research over 25 years<br />Pairwise Comparisons <br /><ul><li>9 extreme
  8. 8. 7 very strong
  9. 9. 5 strong
  10. 10. 3 moderate
  11. 11. 1 equal</li></li></ul><li>Criteria Weightings<br />Software programs are available but simple approximation methods can also be used<br />
  12. 12. Revenue Example:<br />Quantitative Judgments<br />Current Revenue<br />Normalized<br />
  13. 13. Strategic Importance Example:<br />Qualitative Judgments<br />Expert Judgment<br />Normalized<br /><ul><li>9 extreme
  14. 14. 8
  15. 15. 7 very strong
  16. 16. 6
  17. 17. 5 strong
  18. 18. 4
  19. 19. 3 moderate
  20. 20. 2
  21. 21. 1 weak
  22. 22. 0 none</li></ul>Absolute Judgement Scale<br />
  23. 23. Prioritizing Market Segments<br />3rd<br />4th<br />1ST<br />2nd<br /><ul><li> Most Important Segment C should get 30% of resources
  24. 24. Segment D is twice as important than Segment B</li></li></ul><li>Analytic Hierarchy Process<br />A generic multi-criteria decision making process<br /><br />