AHP-ANALYTIC HIERARCHY PROCESS- How To Slove AHP in Excel

BIRLA INSTITUTE OF MANAGEMENT TECHNOLOGY
Post Graduate Programme – AY 2017-019 - Term I
ANALYTIC HIERARCHY
PROCESS
(AHP)
Mentor: Prof. Sourabh Bishnoi
Submitted by: Megha Ahuja
megha.ahuja19@bimtech.ac.in
17IN631, PGDM-IBM

Acknowledgements
The success of any project depends largely on the encouragement and
guidelines of many others. I take this opportunity to express my
gratitude to the people who have been instrumental in the successful
completion of this assignment. I would like to show my greatest
appreciation to Prof. Sourabh Bishnoi.
I can’t say thank you enough for his tremendous support and help.
Without his encouragement and guidance this project would not have
materialized.

OUTLINE
— Acknowledgement……………………………………………...02
— History of AHP…………………………………………………04
— What is AHP?..............................................................................05
__How it works………………………………………………...….06
__Steps ForAHP…………………………………………………..06
— AHP process……………………………………………………08
__Uses & Applications…………………………………………….09
-Problem Statement…………………………………………10
-Step 1………………………………………………………10
-Step 2………………………………………………………11
-step 3……………………………………………………….17
-Step 4………………………………………………………19
-Step 5………………………………………………………21
— Case study……………………………………………………...23
__Advantages and diadvantages…………………………………..23
— Summary……………………………………………………….24
__ Source & References…………………………………………...25

Analytic Hierarchy Process
History
• AHP first introduced by Saaty in 1977
• Apparent problems with the way pairwise comparisons were used pointed out by
Belton and Gear in 1983
• Belton and Gear introduced Revised-AHP
• Saaty accepted the change and introduced Ideal Mode AHP in 1994
• Best known and widely used Multi Criteria Analysis (MCA) approach
• Relative priority of each criteria • Real world decision problems
• Spend on Defence or Agriculture?
• Buy an Ecosport or Koleos?
• Integrated manufacturing (Putrus, 1990),
• In the evaluation of technology investment decisions (Boucher and McStravic,
1991)
• In flexible manufacturing systems (Wabalickis, 1988)
• Layout design (Cambron and Evans, 1991)

What is Analytical Hierarchical Process (AHP)?
The analytic hierarchy process (HP) is a structured technique for organizing and
analyzing complex decisions, based on mathematics and psychology. It was
developed by Thomas L. Saaty in the 1970s and has been extensively studied and
refined since then. It has particular application in group decision making, and is
used around the world in a wide variety of decision situations, in fields such as
government, business, industry, healthcare, and education.
AHP transforms the comparisons, which are most of the times empirical, into
numeric values that are further processed and compared. The weight of each
factor allows the assessment of each one of the elements inside the defined
hierarchy. This capability of converting empirical data into mathematical models
is the main distinctive contribution of the AHP technique when contrasted to other
comparing techniques.
After all comparisons have been made, and the relative weights between each one
of the criteria to be evaluated have been established, the numerical probability of
each alternative is calculated. This probability determines the likelihood that the
alternative has to fulfill the expected goal. The higher the probability, the better
chances the alternative has to satisfy the final goal of the portfolio.

How AHP works?
The AHP helpsdecisionmakersfindone thatbestsuitstheirgoal andtheir
understandingof the problem.Itprovidesacomprehensiveandrational frameworkfor
structuringa decisionproblem,forrepresentingandquantifyingitselements,for
relatingthose elementstooverall goals,andforevaluatingalternative solutions.
Steps for AHP Process -
1. Users of the AHP first decompose their decision problem into a
hierarchy of more easily comprehended sub-problems, each of
which can be analyzed independently. The elements of the
hierarchy can relate to any aspect of the decision problem—
tangible or intangible, carefully measured or roughly estimated,

well or poorly understood—anything at all that applies to the
decision at hand.
2. Once the hierarchy is built, the decision makers systematically
evaluate its various elements by comparing them to each other two
at a time, with respect to their impact on an element above them in
the hierarchy. In making the comparisons, the decision makers can
use concrete data about the elements, but they typically use their
judgments about the elements' relative meaning and importance. It
is the essence of the AHP that human judgments, and not just the
underlying information, can be used in performing the evaluations.
3. The AHP converts these evaluations to numerical values that can be
processed and compared over the entire range of the problem. A
numerical weight or priority is derived for each element of the
hierarchy, allowing diverse and often incommensurable elements to
be compared to one another in a rational and consistent way. This
capability distinguishes the AHP from other decision making
techniques.
4. In the final step of the process, numerical priorities are calculated
for each of the decision alternatives. These numbers represent the

alternatives' relative ability to achieve the decision goal, so they
allow a straightforward consideration of the various courses of
action.
5. Several firms supply computer software such as Microsoft excel to
assist in using the process.

Uses and Application of AHP –
Decision situations to which the AHP can be applied include -
 Choice – The selection of one alternative from a given set of
alternatives, usually where there are multiple decision criteria
involved.
 Ranking – Putting a set of alternatives in order from most to least
desirable
 Prioritization – Determining the relative merit of members of a set
of alternatives, as opposed to selecting a single one or merely
ranking them
 Resource allocation – Apportioning resources among a set of
alternatives
 Benchmarking – Comparing the processes in one's own
organization with those of other best-of-breed organizations
 Quality management – Dealing with the multidimensional aspects
of quality and quality improvement
 Conflict resolution – Settling disputes between parties with
apparently incompatible goals or positions.
Problem statement
Problem Statement /Synopsis: Ankit wants to go on summer
vacation with his family, and he is confused aboutthe destination. He
has four options i.e. Hill stations, Desert, Beach and Religious place.
He cannot decide amongstthese options and he have to make a
decision about the location of his vacation, keeping in mind the
preferences of his family and his budget. He has identified four
criteria, which are,

1) Travel distance
2) Vacation cost
3) Outdoor activities
4) Learning for children;
Using AHP find the most appropriatedestination, whereankit should
spend his summer vacation.
STEP -1 DEVELOPING A HIERARCHY
Decision Making Process While Planning for a
Summer Vacation

Step-2: Ranking of Criteria and Alternatives
• Pairwise comparisons are made with the grades ranging from 1-9.
• A basic, but very reasonable assumption for comparing alternatives: If
attribute A is absolutely more important than attribute B and is rated at 9, then
B must be absolutely less important than A and is graded as 1/9.
• These pairwise comparisons are carried out for all factors to be considered,
usually not more than 7, and the matrix is completed.
This Shows:
• How important is criterion A relative to criterion B?
• Assign a weight between 1 and 9
• Reciprocal of the value is assigned to the other criterion in the pair •
How important is criterion B relative to criterion A?
• Normalize and average the weighing to obtain average weight for each
criterion

Question 1: What is the relative Importance of ‘TRAVEL DISTANCE’ withrespect
to OTHERS?
Compare the decision criteria and circle the answer using scale below
1=Equal; 3=Moderate; 5=Strong; 7=Very Strong; 9=Extreme
TRAVEL
DISTENCE
9 8 7 6 5 4 3 2 1 2 3 4 5 6 7 8 9 VACATION
COST
TRAVEL
DISTANCE
9 8 7 6 5 4 3 2 1 2 3 4 5 6 7 8 9 OUTDOOR
ACTIVITIES

TRAVEL
DISTANCE
9 8 7 6 5 4 3 2 1 2 3 4 5 6 7 8 9 LEARNING FOR
CHILDRENS
Question 2: What is the relative Importance of ‘VACATIONCOST’ withrespectto
OTHERS?
VACATION
COST
9 8 7 6 5 4 3 2 1 2 3 4 5 6 7 8 9 OUTDOOR
ACTIVITIES
VACATION
COST
9 8 7 6 5 4 3 2 1 2 3 4 5 6 7 8 9 LEARNING FOR
CHILDREN
Question 3: What is the relative Importance of ‘OUTDOOR ACTIVITIES’ with
respectto LEARNINGFORCHILDRENS?
OUTDOOR
ACTTIVITY
9 8 7 6 5 4 3 2 1 2 3 4 5 6 7 8 9 LEARNING
FOR
CHILDREN
WITH ‘TRAVEL DISTANCE’ BEING CONSTANT
Question 4: What is the relative Importance of ‘HILL STATION’ withrespectto
OTHERS?
HILL
STATION
9 8 7 6 5 4 3 2 1 2 3 4 5 6 7 8 9 DESERT
HILL
STATION
9 8 7 6 5 4 3 2 1 2 3 4 5 6 7 8 9 BEACH

HILL
STATION
9 8 7 6 5 4 3 2 1 2 3 4 5 6 7 8 9 RELIGIOUS
PLACE
Question 5: What is the relative Importance of ‘DESERT’ withrespectto OTHERS?
DESERT 9 8 7 6 5 4 3 2 1 2 3 4 5 6 7 8 9 BEACH
DESERT 9 8 7 6 5 4 3 2 1 2 3 4 5 6 7 8 9 RELIGIOUS
PLACE
Question6: What is the relative Importance of ‘BEACH’ withrespectto RELIGIOUS
PLACE?
BEACH 9 8 7 6 5 4 3 2 1 2 3 4 5 6 7 8 9 RELIGIOUS
PLACE
WITH ‘VACATION COST’ BEING CONSTANT
OTHERS?
HILL
STATION
9 8 7 6 5 4 3 2 1 2 3 4 5 6 7 8 9 DESERT
HILL
STATION
9 8 7 6 5 4 3 2 1 2 3 4 5 6 7 8 9 BEACH
HILL
STATION
9 8 7 6 5 4 3 2 1 2 3 4 5 6 7 8 9 RELIGIOUS
PLACE

DESERT 9 8 7 6 5 4 3 2 1 2 3 4 5 6 7 8 9 BEACH
PLACE
Question9: What is the relative Importance of ‘BEACH’ withrespectto RELIGIOUS
PLACE?
BEACH 9 8 7 6 5 4 3 2 1 2 3 4 5 6 7 8 9 RELIGIOUS
PLACE
WITH ‘OUTDOOR ACTIVITIES’ BEING CONSTANT
OTHERS?
HILL
STATION
9 8 7 6 5 4 3 2 1 2 3 4 5 6 7 8 9 DESERT
HILL
STATION
9 8 7 6 5 4 3 2 1 2 3 4 5 6 7 8 9 BEACH
HILL
STATION
9 8 7 6 5 4 3 2 1 2 3 4 5 6 7 8 9 RELIGIOUS
PLACE

DESERT 9 8 7 6 5 4 3 2 1 2 3 4 5 6 7 8 9 BEACH
PLACE
Question 12: What is the relative Importance of ‘BEACH’ withrespectto RELIGIOUS
PLACE?
BEACH 9 8 7 6 5 4 3 2 1 2 3 4 5 6 7 8 9 RELIGIOUS
PLACE
WITH ‘LEARNING FOR CHILDRENS’ BEING CONSTANT
OTHERS?
HILL
STATION
9 8 7 6 5 4 3 2 1 2 3 4 5 6 7 8 9 DESERT
HILL
STATION
9 8 7 6 5 4 3 2 1 2 3 4 5 6 7 8 9 BEACH
HILL
STATION
9 8 7 6 5 4 3 2 1 2 3 4 5 6 7 8 9 RELIGIOUS
PLACE

DESERT 9 8 7 6 5 4 3 2 1 2 3 4 5 6 7 8 9 BEACH
PLACE
Question 15: What is the relative Importance of ‘BEACH’ withrespectto RELIGIOUS
PLACE?
BEACH 9 8 7 6 5 4 3 2 1 2 3 4 5 6 7 8 9 RELIGIOUS
PLACE
Step 3- Pairwise ComparisonMatrix
To determine the priorities for the four criteria, we
need to construct a matrix of the pair wise comparison ratings provided in
the table below. Using four criteria, the pairwise comparison matrix will
consist of four rows and four columns

Comparison on basis of Travel Distance
Comparison on basis of Vacation Cost
Comparison on basis of Outdoor Activities

Comparison on basis of Learning For children
Step 4– Synthesization
Using Pairwise comparison matrix, we can now calculate the priority of
each criterion in terms of its contribution to the overall goal of selecting
the best shampoo.
It requires three steps –
1. Sum the values in each column of the pairwise matrix comparison.
2. Divide each element in the pairwise comparison matrix by its
column total, the resulting matrix is referred to as Normalized
pairwise comparison matrix.

3. Compute the average of the elements in each row of the
normalized pairwise comparison matrix, these averages provide the
priorities of the criteria.
On the basis of Criteria –
Comparison on basis of Travel Distance
Comparison on basis of Vacation cost

Comparison on basis of Outdoor Activities
Comparison on basis of Learning for children
Step 5– Consistency
AHP provides a measureof the consistency for the pairwise
comparison by computing consistency ratio. A value greater than
0.10 indicates an inconsistency in the pairwisejudgments. Thus if the
consistency ratio is 0.10 or less, the consistency of pairwise
comparison is considered reasonable, and the AHP can continue with
the Synthesization computations.
Particulars Consistency Ratio
Characteristics 0.089709

Comparisons on the basis of Travel Distance 0.091548
Comparisons on the basis of vacation cost 0.073525
Comparisons on the basis of Outdoor Activities 0.091006
Comparisons on the basis of Learning for children 0.064436
*The degree of consistency in the pairwise comparisons is
acceptable*

OVERALL PRIORITY RANKING
Hence, The degree of consistency in the
pairwise comparisons is acceptable
Chart Title
Weight for HILL Station Weight for Desert
Weight for Beach Weight for Religious place

INTERESTING CASES OF AHP  
 Xerox Corporation uses AHP for R&D decisions on portfolio
management, technology implementation, and engineering d
esign selection.
British Columbia Ferries Corporation in Canada uses AHP in
the selection of products, suppliers and consultants.
 NASA used AHP to consider criteria for Safety, Performanc
e, Reliability and Flexibility in recommending a power sour
ce for the first lunar outpost. § 
 General Motors use AHP to evaluate design alternatives, p
erform risk management, and arrive at the best and most
cost-‐effective automobile designs.
  Universal
Islam Antarabangsa (UIA) used AHP in benchmarking factors
influencing international students’ choice towards universities
in Malaysia.
ADVANTAGES AND DISADVANTAGES
ADVANTAGES DISADVANTAGES
• Straight-
forward and convenient
• Simplicity by using pair
wise comparisons
• Consistency in evaluation
• Versatility
• Subjective - -
=Conversion from verbal to numeric scale
=Inconsistencies imposed by 1 to 9 scale
=Conflict between Decision maker
= Decision maker capacity

Summary
 With AHP, we can measure the degree of consistency; and if
unacceptable, we can revise pair wise comparisons.
 If we are perfectly consistent, then the consistency measures will equal
n and therefore, the CIs will be equal to zero and so will the
consistency ratio.
 If this ratio is very large (Saaty suggests > 0.10), then we are not
consistent enough and the best thing to do is go back and revise the
comparisons.
 AHP is a simple, practical and handy
 The one-‐‐to-‐‐one qualitative and quantitative comparison
 All of this work concludes the first step in the procedure. The next step
is to use similar pair wise comparisons to determine the
 AHP could apply jointly with other decision making tools such as SWOT
analysis which will generate better result.
 AHP actively nurture intellectual discussion, debate and research on
various ﬁeld and study.

Source & References
 https://www.google.co.in/url?sa=t&rct=j&q=&esrc=s&source=web
&cd=1&cad=rja&uact=8&ved=0ahUKEwjYnMOhxOnXAhWMOY8KH
WdWB9EQFggoMAA&url=https%3A%2F%2Fen.wikipedia.org%2Fwi
ki%2FAnalytic_hierarchy_process&usg=AOvVaw3ErPQ2NrT4n2vG5
RKTjx8M
&cd=2&cad=rja&uact=8&ved=0ahUKEwjYnMOhxOnXAhWMOY8KH
WdWB9EQFgg0MAE&url=https%3A%2F%2Fen.wikipedia.org%2Fwi
ki%2FAnalytic_hierarchy_process_%25E2%2580%2593_car_exampl
e&usg=AOvVaw33DrSvBizg-btzQj925FIV
 https://www.sciencedirect.com/science/article/pii/0270025587904
738
 https://en.wikipedia.org/wiki/Analytic_hierarchy_process
&cd=6&cad=rja&uact=8&ved=0ahUKEwinvrvSxOnXAhUDKo8KHVFy
Aw8QtwIITzAF&url=https%3A%2F%2Fwww.youtube.com%2Fwatch
%3Fv%3DG1xrL59RsBM&usg=AOvVaw1rONcQHMYQX-
WpwGahpBur

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