9/30/2008

Dealing with complex decisions: Analytic Hierarchy Process

Strategic decisions, project prioritization and dating. We all face complex decisions in our lives and how happy are you that I will share with you a neat technique based on mathematics and psychology developed by Thomas L Saaty in the 70's?! Analytic Hierarchy Process (AHP) helps rationalize and structure a complex problem by decomposing it into a hierarchy of simple problems.

Once the hierarchy is composed the technique allows for comparing pairs of sub-problems against each other rather than trying to immediately prioritize them in a serial fashion. If you have participating in any of the on-line profiling tools (that many dating sites provide for free) you will recognize the technique: rather than ask you to rank your likes/dislikes, you are given pairs of choices: "Do you prefer a candlelit dinner or night at the movies?", "do you prefer night at the movies or going to a club?", etc.

After pairing each factor against the others, the technique allows you to calculate their exact weights so that you can now score your options using these weights. E.g.: If your dating preferences ended up as follows:
  • Candlelit dinner: 80%
  • Night at the movies: 15%
  • Going to a club: 5%
Then you could score your potential "mates" against these factors and apply the weights to get a weighted score for each.

For a hands-on example of AHP in deciding which job offer to accept, read this example walk-thru and you will quickly understand the concepts at hand. The example is about an employee, Peter, who is mulling over 4 job offers. Rather than decide between the 4 companies he considers factors such as location, salary, job, content and long-term prospects and leverages AHP to formalize the relative importance.

To simplify the calculation of the AHP weights I created a template spreadsheet available for free download:

The calculator contains my (fictitious) factors in choosing an apartment in New York city (inspired by my recent move from midtown to the upper west side). I used Size, Location, Cost and Transportation. Then I entered (into the yellow cells) the names of the features to pair/compare and how they stack up against each other. If you read the example walk-thru document reference above then you will understand how the spreadsheet works. I added some cool features to the mix: After you update the spreadsheet, the "ranking weights" table updates with a bar graph and resizes the fonts in the table based on your calculated weights.

3 comments:

getsixsigma@aol.com said...

Interesting use of the AHP method...Check out using the Pugh Matrix too...It uses the AHP informaiton to expand the decsion making process.

deo said...

I think it is easier to use AHP dedicated tool like AHPproject

dopydo said...

Another AHP tool - MakeItRational (AHPproject 2.0)