Multicriteria Decision

Making

Chapter 9

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Chapter Topics

■ Goal Programming
■ Computer Solution of Goal Programming Problems with QM for
Windows and Excel

■ The Analytical Hierarchy Process

■ Scoring Models

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Overview

■ Study of problems with several criteria, multiple criteria, instead of a

single objective when making a decision.
■ Three techniques discussed: goal programming, the analytical hierarchy
process and scoring models.
■ Goal programming is a variation of linear programming considering
more than one objective (goals) in the objective function.
■ The analytical hierarchy process develops a score for each decision
alternative based on comparisons of each under different criteria
reflecting the decision makers preferences.
■ Scoring models are based on a relatively simple weighted scoring
technique.

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Goal Programming Example
Problem Data (1 of 2)
Beaver Creek Pottery Company Example:

Maximize Z = $40x1 + 50x2

subject to:
1x1 + 2x2  40 hours of labor
4x1 + 3x2  120 pounds of clay
x1, x2  0
Where: x1 = number of bowls produced
x2 = number of mugs produced

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Goal Programming Example
Problem Data (2 of 2)

■ Adding objectives (goals) in order of importance, the company:

1. Does not want to use fewer than 40 hours of labor per day.
2. Would like to achieve a satisfactory profit level of $1,600 per
day.
3. Prefers not to keep more than 120 pounds of clay on hand
each day.
4. Would like to minimize the amount of overtime.

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Goal Programming
Goal Constraint Requirements

■ All goal constraints are equalities that include deviational

variables d- and d+.
■ A positive deviational variable (d+) is the amount by which a goal
level is exceeded.
■ A negative deviation variable (d-) is the amount by which a goal
level is underachieved.
■ At least one or both deviational variables in a goal constraint must
equal zero.
■ The objective function seeks to minimize the deviation from
the respective goals in the order of the goal priorities.

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Goal Programming Model Formulation
Goal Constraints (1 of 3)

Labor goal:
x1 + 2x2 + d1- - d1+ = 40 (hours/day)

Profit goal:
40x1 + 50 x2 + d2 - - d2 + = 1,600 ($/day)

Material goal:
4x1 + 3x2 + d3 - - d3 + = 120 (lbs of clay/day)

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Goal Programming Model Formulation
Objective Function (2 of 3)

1. Labor goals constraint

(priority 1 - less than 40 hours labor; priority 4 - minimum overtime):
 Minimize P1d1-, P4d1+
2. Add profit goal constraint
(priority 2 - achieve profit of $1,600):
 Minimize P1d1-, P2d2-, P4d1+
3. Add material goal constraint
(priority 3 - avoid keeping more than 120 pounds of clay on hand):
 Minimize P1d1-, P2d2-, P3d3+, P4d1+

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Goal Programming Model Formulation
Complete Model (3 of 3)

Complete Goal Programming Model:

Minimize P1d1-, P2d2-, P3d3+, P4d1+
subject to:
x1 + 2x2 + d1- - d1+ = 40 (labor)
40x1 + 50 x2 + d2 - - d2 + = 1,600 (profit)
4x1 + 3x2 + d3 - - d3 + = 120 (clay)
x1, x2, d1 -, d1 +, d2 -, d2 +, d3 -, d3 +  0

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Goal Programming Computer Solution
Using QM for Windows (1 of 3)
Minimize P1d1-, P2d2-, P3d3+, P4d1+
subject to:
x1 + 2x2 + d1- - d1+ = 40
40x1 + 50 x2 + d2 - - d2 + = 1,600
4x1 + 3x2 + d3 - - d3 + = 120
x1, x2, d1 -, d1 +, d2 -, d2 +, d3 -, d3 +  0

Exhibit 9.1
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Goal Programming Computer Solution
Using QM for Windows (2 of 3)

Exhibit 9.2

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Goal Programming Computer Solution
Using QM for Windows (3 of 3)

Exhibit 9.3
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Goal Programming Computer Solution
Using Excel (1 of 3)

Exhibit 9.4
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Goal Programming
Computer Solution Using Excel (2 of 3)

Exhibit 9.5
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Goal Programming
Computer Solution Using Excel (3 of 3)

Exhibit 9.6
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Analytical Hierarchy Process (AHP)
Overview

■ Method for ranking several decision alternatives and selecting

the best one when the decision maker has multiple objectives, or
criteria, on which to base the decision.
■ The decision maker makes a decision based on how the
alternatives compare according to several criteria.
■ The decision maker will select the alternative that best meets the
decision criteria.
■ A process for developing a numerical score to rank each
decision alternative based on how well the alternative meets the
decision maker’s criteria.

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Analytical Hierarchy Process
Example Problem Statement

Southcorp Development Company shopping mall site selection.

■ Three potential sites:
 Atlanta
 Birmingham
 Charlotte.
■ Criteria for site comparisons:
 Customer market base.
 Income level
 Infrastructure

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Analytical Hierarchy Process
Hierarchy Structure
■ Top of the hierarchy: the objective (select the best site).

■ Second level: how the four criteria contribute to the objective.

■ Third level: how each of the three alternatives contributes to each

of the four criteria.

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Analytical Hierarchy Process
General Mathematical Process

■ Mathematically determine preferences for sites with respect to

each criterion.
■ Mathematically determine preferences for criteria (rank order of
importance).
■ Combine these two sets of preferences to mathematically derive a
composite score for each site.
■ Select the site with the highest score.

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Analytical Hierarchy Process
Pairwise Comparisons (1 of 2)

■ In a pairwise comparison, two alternatives are compared according

to a criterion and one is preferred.

■ A preference scale assigns numerical values to different levels of

performance.

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Analytical Hierarchy Process
Pairwise Comparisons (2 of 2)

Table 9.1 Preference Scale for Pairwise Comparisons

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Analytical Hierarchy Process
Pairwise Comparison Matrix
A pairwise comparison matrix summarizes the pairwise
comparisons for a criteria.
Customer Market
Site A B C
A 1 3 2
B 1/3 1 1/5
C 1/2 5 1

Income Level Infrastructure Transportation

A  1 6 1/3   1 1/3 1  1 1/3 1/2
  
     
B 1/6 1 1/9  3 1 7 3 1 4 
     

C 3 9 1  
1 1/7 1


2 1/4
 1 


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Analytical Hierarchy Process
Developing Preferences Within Criteria (1 of 3)
In synthesization, decision alternatives are prioritized within each criterion

Customer Market
Site A B C
A 1 3 2
B 1/3 1 1/5
C 1/2 5 1
11/6 9 16/5

Customer Market
Site A B C
A 6/11 3/9 5/8
B 2/11 1/9 1/16
C 3/11 5/9 5/16

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Analytical Hierarchy Process
Developing Preferences Within Criteria (2 of 3)
The row average values represent the preference vector

Table 9.2 The Normalized Matrix with Row Averages

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Analytical Hierarchy Process
Developing Preferences Within Criteria (3 of 3)
Preference vectors for other criteria are computed similarly,
resulting in the preference matrix

Table 9.3 Criteria Preference Matrix

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Analytical Hierarchy Process
Ranking the Criteria (1 of 2)
Pairwise Comparison Matrix:
Criteria Market Income Infrastructure Transportation
Market 1 1/5 3 4
Income 5 1 9 7
Infrastructure 1/3 1/9 1 2
Transportation 1/4 1/7 1/2 1

Table 9.4 Normalized Matrix for Criteria with Row Averages

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Analytical Hierarchy Process
Ranking the Criteria (2 of 2)

Preference Vector for Criteria:

Market 
0.1993 
 

Income

0.6535 

 
 
Infrastructure 0.0860 
 
 
Transportation 0.0612
 

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Analytical Hierarchy Process
Developing an Overall Ranking
Overall Score:
Site A score = .1993(.5012) + .6535(.2819) + .0860(.1790) +
.0612(.1561)
= .3091
Site B score = .1993(.1185) + .6535(.0598) + .0860(.6850) +
.0612(.6196) = .1595
Site C score = .1993(.3803) + .6535(.6583) + .0860(.1360) +
.0612(.2243) = .5314
Site Score
Charlotte 0.5314
Atlanta 0.3091
Overall Ranking:
Birmingham 0.1595
1.0000
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Analytical Hierarchy Process
Summary of Mathematical Steps
1. Develop a pairwise comparison matrix for each decision alternative
for each criteria.
2. Synthesization
a. Sum each column value of the pairwise comparison matrices.
b. Divide each value in each column by its column sum.
c. Average the values in each row of the normalized matrices.
d. Combine the vectors of preferences for each criterion.
3. Develop a pairwise comparison matrix for the criteria.
4. Compute the normalized matrix.
5. Develop the preference vector.
6. Compute an overall score for each decision alternative
7. Rank the decision alternatives.
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Analytical Hierarchy Process: Consistency (1 of 3)

Consistency Index (CI): Check for consistency and validity of

multiple pairwise comparisons
Example: Southcorp’s consistency in the pairwise comparisons of the 4
site selection criteria
Market Income Infrastructure Transportation Criteria
Market 1 1/5 3 4 0.1993
Income 5 1 9 7 0.6535
X
Infrastructure 1/3 1/9 1 2 0.0860
Transportation 1/4 1/7 1/2 1 0.0612
(1)(0.1993) + (1/5)(0.6535) + (3)(0.0860) + (4)(0.0612) = 0.8328
(5)(0.1993) + (1)(0.6535) + (9)(0.0860) + (7)(0.0612) = 2.8524
(1/3)(0.1993) + (1/9)(0.6535) + (1)(0.0860) + (2)(0.0612) = 0.3474
(¼)(0.1993) + (1/7)(0.6535) + (½)(0.0860) + (1)(0.0612) = 0.2473
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Analytical Hierarchy Process: Consistency (2 of 3)

Step 2: Divide each value by the corresponding weight from the

preference vector and compute the average
0.8328/0.1993 = 4.1786
2.8524/0.6535 = 4.3648
0.3474/0.0860 = 4.0401
0.2473/0.0612 = 4.0422
16.257
Average = 16.257/4
= 4.1564

Step 3: Calculate the Consistency Index (CI)

CI = (Average – n)/(n-1), where n is no. of items compared
CI = (4.1564-4)/(4-1) = 0.0521
(CI = 0 indicates perfect consistency)
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Analytical Hierarchy Process: Consistency (3 of 3)

Step 4: Compute the Ratio CI/RI

where RI is a random index value obtained from Table 9.5

n 2 3 4 5 6 7 8 9 10
RI 0 0.58 0.90 1.12 1.24 1.32 1.41 1.45 1.51
Table 9.5 Random Index Values for n Items Being Compared

CI/RI = 0.0521/0.90 = 0.0580

Note: Degree of consistency is satisfactory if CI/RI < 0.10

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Analytical Hierarchy Process
Excel Spreadsheets (1 of 4)

Exhibit 9.12
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Analytical Hierarchy Process
Excel Spreadsheets (2 of 4)

Exhibit 9.13
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Analytical Hierarchy Process
Excel Spreadsheets (3 of 4)

Exhibit 9.14
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Analytical Hierarchy Process
Excel Spreadsheets (4 of 4)

Exhibit 9.15
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Scoring Model Overview

Each decision alternative graded in terms of how well it satisfies the

criterion according to following formula:
Si = gijwj
where:
wj = a weight between 0 and 1.00 assigned to criterion j;
1.00 important, 0 unimportant;
sum of total weights equals one.
gij = a grade between 0 and 100 indicating how well alternative i
satisfies criteria j;
100 indicates high satisfaction, 0 low satisfaction.

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Scoring Model
Example Problem
Mall selection with four alternatives and five criteria:
Grades for Alternative (0 to 100)
Weight
Decision Criteria (0 to 1.00) Mall 1 Mall 2 Mall 3 Mall 4
School proximity 0.30 40 60 90 60
Median income 0.25 75 80 65 90
Vehicular traffic 0.25 60 90 79 85
Mall quality, size 0.10 90 100 80 90
Other shopping 0.10 80 30 50 70
S1 = (.30)(40) + (.25)(75) + (.25)(60) + (.10)(90) + (.10)(80) = 62.75
S2 = (.30)(60) + (.25)(80) + (.25)(90) + (.10)(100) + (.10)(30) = 73.50
S3 = (.30)(90) + (.25)(65) + (.25)(79) + (.10)(80) + (.10)(50) = 76.00
S4 = (.30)(60) + (.25)(90) + (.25)(85) + (.10)(90) + (.10)(70) = 77.75

Mall 4 preferred because of highest score, followed by malls 3, 2, 1.

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Scoring Model
Excel Solution

Exhibit 9.16
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Goal Programming Example Problem
Problem Statement
Public relations firm survey interviewer staffing requirements
determination.
■ One person can conduct 80 telephone interviews or 40 personal
interviews per day.
■ $50/ day for telephone interviewer; $70 for personal interviewer.
■ Goals (in priority order):
1. At least 3,000 total interviews.
2. Interviewer conducts only one type of interview each day;
maintain daily budget of $2,500.
3. At least 1,000 interviews should be by telephone.
Formulate and solve a goal programming model to determine
number of interviewers to hire in order to satisfy the goals
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Goal Programming Example Problem
Solution (1 of 2)

Step 1: Model Formulation:

Minimize P1d1-, P2d2+, P3d3-
subject to:
80x1 + 40x2 + d1- - d1+ = 3,000 interviews
50x1 + 70x2 + d2- - d2 + = $2,500 budget
80x1 + d3- - d3 + = 1,000 telephone interviews
where:
x1 = number of telephone interviews
x2 = number of personal interviews

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Goal Programming Example Problem
Solution (2 of 2)
Step 2: QM for Windows Solution:

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Analytical Hierarchy Process Example Problem
Problem Statement
Purchasing decision, three model alternatives, three decision criteria.
Pairwise comparison matrices:
Price Gear Action Weight/Durability
Bike X Y Z Bike X Y Z Bike X Y Z
X 1 3 6 X 1 1/3 1/7 X 1 3 1
Y 1/3 1 2 Y 3 1 1/4 Y 1/3 1 1/2
Z 1/6 1/2 1 Z 7 4 1 Z 1 2 1

Prioritized decision criteria:

Criteria Price Gears Weight
Price 1 3 5
Gears 1/3 1 2
Weight 1/5 1/2 1

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Analytical Hierarchy Process Example Problem
Problem Solution (1 of 4)
Step 1: Develop normalized matrices and preference vectors for all
the pairwise comparison matrices for criteria.
Price
Bike X Y Z Row Averages
X 0.6667 0.6667 0.6667 0.6667
Y 0.2222 0.2222 0.2222 0.2222
Z 0.1111 0.1111 0.1111 0.1111
1.0000

Gear Action
Bike X Y Z Row Averages
X 0.0909 0.0625 0.1026 0.0853
Y 0.2727 0.1875 0.1795 0.2132
Z 0.6364 0.7500 0.7179 0.7014
1.0000

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Analytical Hierarchy Process Example Problem
Problem Solution (2 of 4)
Step 1 continued: Develop normalized matrices and preference
vectors for all the pairwise comparison matrices for criteria.
Weight/Durability
Bike X Y Z Row Averages
X 0.4286 0.5000 0.4000 0.4429
Y 0.1429 0.1667 0.2000 0.1698
Z 0.4286 0.3333 0.4000 0.3873
1.0000

Criteria
Bike Price Gears Weight
X 0.6667 0.0853 0.4429
Y 0.2222 0.2132 0.1698
Z 0.1111 0.7014 0.3873

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Analytical Hierarchy Process Example Problem
Problem Solution (3 of 4)
Step 2: Rank the criteria.

Criteria Price Gears Weight Row Averages

Price 0.6522 0.6667 0.6250 0.6479
Gears 0.2174 0.2222 0.2500 0.2299
Weight 0.1304 0.1111 0.1250 0.1222
1.0000

Price 
 0.6479 
 
Gears 
 0.2299 
 

Weight  0.1222 
 

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Analytical Hierarchy Process Example Problem
Problem Solution (4 of 4)
Step 3: Develop an overall ranking.

Bike X 
0.6667 0.0853 0.4429  0.6479
   
Bike Y 
0.2222 0.2132 0.1698   0.2299
 
   

Bike Z 0.1111 0.7014 0.3837  0.1222

 
  

Bike X score = .6667(.6479) + .0853(.2299) + .4429(.1222) = .5057

Bike Y score = .2222(.6479) + .2132(.2299) + .1698(.1222) = .2138
Bike Z score = .1111(.6479) + .7014(.2299) + .3873(.1222) = .2806
Overall ranking of bikes: X first followed by Z and Y (sum of
scores equal 1.0000).

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