Question

Explain Relevance and working of Analytic Hierarchy Process (AHP) with an example considering both qualitative and quantitative criteria.

Answer 1

The use of AHP involves a mathematical synthesis of many judgments about existing solution problems. It is not uncommon for these judgments to be in the tens or hundreds. While math can be done manually or with a calculator, but most often a computer method is used to enter and synthesize estimates. The simplest of these programs involve standard spreadsheet software, while most modern applications use customizable software, often complemented by special tools to get decision makers gathered in the meeting room.

The procedure for using AHP can be summarized as follows:

Model problems as a hierarchy with the objectives of the alternative solution for achieving it and the criteria for evaluating the options.
Prioritize among the elements of the hierarchy by making a series of judgments based on a double comparison of elements. For example, when comparing potential commercial real estate purchases, investors may say they prefer location over price and value over time.
Synthesize these solutions to provide a general set of priorities for the hierarchy. This will combine the investor’s assessment of the location, price, and timing of properties A, B, C and D in the general priority for each asset.
Examine the order of judgment.
Make a final decision based on the outcome of this process.