The analytic hierarchy process (AHP) is a multi-criteria method for organising and analysing complex decisions using criteria assessment and prioritisation. Management professionals use the AHP framework to support business goals and guide decision-making processes. Learning about this framework can help you assist your team in reaching goals. In this article, we define the AHP method, describe its advantages and explain steps to use this approach.
What is the AHP method?
The AHP method is a detailed and structured framework that you can use for analysing and prioritising complex decisions. Building structures or lists of decisions can be helpful in improving overall business growth. Proper analysis and study of all the possibilities may allow you to prioritise decisions based on their benefits and drawbacks. With the help of the AHP framework, you can make decisions in various complex environments or situations and prioritise different projects. You can use the AHP framework to analyse the outcomes of each decision independently. Once you complete the comparison, you can calculate the numerical probability of each criterion. The AHP process may involve both easy and complex mathematical calculations. Some common situations when you can use the AHP methodology are for long-term decisions and the requirement of a large number of resources. You can also use this method when the project involves multiple stakeholders or requires additional support.
Steps in the AHP method
Here are the steps that the AHP methodology involves:
- Define your goals
Understanding the goal can be the first step of the AHP process. For example, a business may have goals of prioritising project tasks or evaluating product quality. While determining your goals, ensure they are achievable and measurable. It can help you track the progress of your goals.
- Identify the problem
The process of identifying the problem requires you to understand the challenges you may face while managing a project. You can categorise the issues into subproblems. For example, if a company wants to invest some amount in stocks then it has the challenge of finding a profitable option to invest. This single challenge may have various subproblems related to the stock. Some common factors can be the sum of liquidity, market growth and the ability to generate cash flow. By identifying the problem, you can find the most prominent issues based on their priorities and find the right solution for each one of them.
- Organise criteria into matrices
You can organise the important criteria using a comparison matrix. A comparison matrix is a grid consisting of rows and columns to input information about the criteria. You can estimate the value of each criterion by making a fair comparison between the elements of rows and columns. You can enter a number from zero to 10 in the matrix structure to represent the dominance of elements. For example, you can enter a 10 when you feel more confident about a specific alternative.
- Estimate the importance and weight of criteria
Calculate the weights of the criteria to understand their effects on overall decision-making. It can help you evaluate which criteria can influence more in the decision-making process. Here is an example to understand this step of the AHP method more clearly:
Four accounting and finance professionals are working on a project. Each of them weighs the solutions and represents them with a number. They use these numbers to quantify their feedback on different factors such as liquidity, cash flow and growth. The matrix for this example may look like this:
- Analyse and select the best option
Selecting the best option out of all the criteria is the final step in the AHP methodology. You can use the utility as the numerical value of the criteria to understand its importance and valuation. In mathematical terms, the total utility is equal to the sum of the weight of each criterion and its respective utility value. This can help you in selecting the best option. The utility of an option can be directly proportional to its importance. The higher the importance of an option, the higher can be its utility. In the AHP methodology, utilities may work as a standard unit to measure the importance of criteria with different units.
Advantages of using the AHP framework
Here are some common advantages of the AHP framework:
Credibility
The AHP methodology is a popular tool that many management professionals use to make the right choices in different situations. This method of distributing the possibilities and finding the most effective one from them can be helpful. As it is a trusted decision-making method, you can use it to carry out decisions.
Diverse in nature
AHP methodology offers a significant impact on decision-making in different industries. Some common fields where this method is useful can be site selection, technology selection, vendor selection, hiring the best candidates and making project strategies. This method may serve you with easy and effective approaches to making the right decisions.
Easy to use
This methodology is reliable and easy to use as it can split and break complex decisions into criteria, options and goals. It allows you to easily understand each step of the decision-making process and evaluate them based on importance. The other methods of decision-making can be complex in nature as they include more mathematical calculations. On the contrary, the AHP framework offers input and explanations to support the final result.
Multiple criteria comparison
The AHP methodology involves the comparison of all the available criteria. With the help of this method, you can compare one criterion with another and find out the best option. During the process of comparing criteria, conflicts and contradictions may occur. If the entire team uses the AHP framework for decision-making, there can be different opinions. Team members can share their opinions so that you can compare different ideas with each other. The consequences of each idea can help you make the final decision.
Additional tips for using the AHP method
Here are some helpful additional tips that you can consider while using the AHP methodology:
Use a reasonable scaling
Consider selecting the scale of simple numbers. You can use a scale with simple numbers 1, 2, 3 and 9. Many professionals also use a 1–5 or 1–10 scale.
Avoid selecting many criteria
While using the AHP method, you can avoid selecting too many options. If the options are similar in nature, you can consider minimising the use of such criteria. Make sure there is a sufficient difference among all the options. This may allow your team to differentiate between all the options.
Select an effective process for group evaluations
Different team members may have different perspectives on the importance of the criteria. You can choose the process to consolidate the group evaluations. Allow your team members to determine the right method to consolidate their different opinions.
Example of AHP methodology
Here is a good example of AHP methodology:
A company manufacturing large consumer products wants to determine its priorities for developing promotional marketing campaigns. The company gathers feedback from customers and allows marketing managers to determine the priorities. They can prioritise increasing the number of innovative marketing programmes. The company confirmed this by completing an AHP analysis. They used a scale of 1,3,9 and organised criteria into matrices.
By doing this, they understood that the customer’s priority was the profitability of the programme. On the contrary, marketing managers wanted to focus on innovation and programmes. Using the AHP methodology helped the company avoid spending time and resources on low-priority actions.
Some common situations when you can use the AHP methodology are for long-term decisions and the requirement of a large number of resources. You can also use this method when the project involves multiple stakeholders or requires additional support.
