Decision Making Using Analytic Hierarchy Process
Analytic Hierarchy Process (AHP) is a decision making tool based on mathematics and psychology that enables complex decision making in relatively simple steps. AHP uses subjective judgments and helps make decisions in complex and uncertain environments, such as with unstructured decision problems or conflicts between multiple stakeholders with different evaluation criteria. AHP enables multi-criteria decisions by quantifying the relative importance of criteria and alternatives and then finding the best solution.
At a basic level, AHP uses a pairwise comparison technique to compare criteria and alternatives and to capture the relative importance of each element. Through a series of comparisons, the decision makers make selections that define the criteria, identify the relative strength of each criterion and construct the decision region. Once the decision region is fully determined all alternatives can be compared against it, and the best solution can be chosen from that. The decision makers also get insight into how to best modify the decision region to create better solutions.
AHP selection algorithms use the following steps:
1. Define the problem: Clearly identify the decision or issue that needs to be addressed and understand the objectives in solving the problem.
2. Develop Decision Model: Structure the decision-making environment into a hierarchy of criteria that evaluates options against specific criteria and assign relative weights of importance to each criterion.
3. Compare Alternatives: Compare each alternative on each of the individual criteria to determine its overall benefit score.
4. Select Best Option: Identify the alternative with the highest overall weighted score as the best option.
AHP is a powerful decision making tool due to its ability to help decision makers easily determine the relative importance and strength of criteria and alternatives. It can help decision makers identify the best solution that best meets the need of all the criteria, any stakeholders, and any conflicts. Moreover, AHP can provide leads on how to modify the decision region to create better solutions. All of these qualities make AHP a great tool for decision making.
AHP is used by corporations in a variety of situations, including acquisitions, capital investments, and product designs. The selection criteria are typically related to financial, strategic, and engineering issues, as well as product features, customer preferences, and social impacts.
For example, a company may use AHP to decide on a product design. They may use AHP to identify which criteria are most important to the customers, stakeholders, and shareholders and to compare the competitors in each criterion to determine the product that best meets their needs. Once the best option is identified the company can use the insights provided by AHP to tweak their decision region to enable the design of the best possible product.
AHP is also used by organizations to determine employee compensation and performance rewards, by individuals when selecting a mortgage and by software engineers selecting the best option to develop a product.
Overall, Analytic Hierarchy Process (AHP) is an effective and flexible decision making tool. It helps decision makers make decisions in complex and uncertain environments by quantifying the relative importance of criteria and alternatives and then finding the best solution. It can be used for a variety of purposes, such as acquisitions, product design, employee compensation and performance rewards, mortgages, and software development. AHP is a powerful tool for decision makers who need to make informed decisions quickly and accurately.
