The Evaluation of Business Environmental Performancein Taiwan by Analytic Hierarchy Process (AHP)
Dr. Lih-Chyi Wen 2017.08.23

Improving the Energy-Water-Material Nexus towardsustainable future in East Asia: Korea Workshop

Introduction
 Chung-Hua Institution for
Economic Research (CIER)
A think tank on the research of economics,
mainly serving for Taiwanese government
for the policy making and analysis.

 Center for Green Economy (CGE)
Based in CIER
Specialized in the fields of environmental

economics, international trade and national
green policy

Introduction
 This research report aims to assess the status of green

business (GB) in several APO member countries.
 The study developed an evaluation framework comprising a
set of criteria to assess the status of GB among the APO

member countries.
 The framework uses environmental sustainability,productivity and social contribution as the top-level criteria.
 the analytic hierarchy process (AHP), Microsoft Excel andExpert Choice 2000 were used in simulation.
 A set of two surveys; with Survey 1 covering 367 respondents,and Survey 2 covering 89 companies;3 In the evaluation of GB, respondents in six APO member countries consideredenvironmental sustainability and productivity as the most important first-tiercriteria, with scores of 0.550 and 0.246, respectively. The social-contribution
criterion, with a score of 0.204, was regarded as relatively less important.
 Among all the 14 second-tier criteria, the most highly regarded was air quality
with a score of 0.133, followed by water quality (0.111) and the use of renewableenergy (0.095). Green label and customer complaints were considered the least

important.
 All values, by their relative importance, obtained from Survey 1, were added tothe corresponding values by actual data, as obtained from Survey 2, in order torank all the companies. The company CC5, from Republic of China (ROC), wasranked as the best company. The companies EC3 of Indonesia and CC15 of ROC
were awarded the second and third ranks [1]. The study also shows the diver4

簡報大綱Outline
 Introduction of the Analytic Hierarchy
Process (AHP)

 An Advanced Version of AHP: ANP
 Case Study Conclusion

Introduction of the AnalyticHierarchy Process (AHP)

6

What is AHP?
 The analytic hierarchy process (AHP) is a structured techniquefor organizing and analyzing complex decisions.
 It was developed by Thomas L. Saaty in the 1970s and has been
extensively studied and refined since then.
 It is a method to derive ratio scales from paired comparisons.
The input can be obtained from actual measurement such asprice, weight etc., or from subjective opinion such as satisfaction
feelings and preference.
 Application:
Single choice/multi-choice decision, Ranking decision, Prioritization,
Resource allocation, Benchmarking, or Quality Management

7What Is AHP?(Cont.) The basic principles of AHP are as follows: The decomposition principle is applied to structure a complex problem into ahierarchy of clusters, subclusters, sub-sub clusters and so on.
 The principle of comparative judgments is applied to construct pair-wisecomparisons of all combinations of elements in a cluster with respect to theparent of the cluster. These pair-wise comparisons are used to derive ‘local’priorities of the elements in a cluster with respect to their parent.
 The principle of hierarchic composition or synthesis is applied to multiply
the local priorities of the elements in a cluster by the “global” priority of theparent element, producing global priorities throughout the hierarchy and thenadding the global priorities for the lowest level elements (usually thealternatives).
8

What Is AHP?(Cont.) The axioms of the AHP are as follows: Axiom 1: (Reciprocal Comparison). The decision maker must be able to makecomparisons and state the strength of his preferences. The intensity of these
preferences must satisfy the reciprocal condition: If A is x times more preferred thanB, then B is 1/x times more preferred than A.
 Axiom 2: (Independence). When expressing preferences, criteria are assumed
independent of the properties of the alternatives.
 Axiom 3: (Expectations). For the purpose of making a decision, the hierarchic
structure is assumed to be complete.
 Axiom 4: (Homogeneity). The characteristic of people's ability for making
comparisons among things that are not too dissimilar with respect to a common
property and, hence, the need for arranging them within an order preserving hierarchy.
9

AHP Process
Step • Defining the decision problem
1
Step • Developing a conceptual framework2• Setting up the decision hierarchy
Step3• Such as decision goal, the alternatives for reaching it, and the criteria for evaluating thealternatives.

Step • Collecting data from experts
4• Employing the pair-wise comparison

Step
5• Developing a pair-wise comparison matrix• Calculating Eigen Value and Eigen vector

Step • Estimating relative weights of elements
6

Step • Calculating the degree of consistency
7
Step • Come to a final decision based on the results of this process810

Hierarchy Tree
Divide the problem into its constituent parts Goal at the topmost level Criteria at the intermediate Level Alternatives at the lowest Level

GoalCriteria……

Alternatives……
1111

Collecting data from experts throughsurvey questionnaire
Questionnaire example
 If you consider criterion A (e.g., environmental sustainability ) is“very strongly important” than criterion B (e.g., productivity), youcheck 7 Aoris more
6 asfollows.
thinkcriterion
important
than B Or if you
B is more
important
than A B (e.g.,equalAproductivity)“slightly
important”
thancriterion
C (e.g., socialB
veryisstrongly,strongly,
Slightly,strongly, veryslightlycontribution ), youcheck 2 or 3.

Environmental

strongly

7 ⑥ 5432124567Productivity

7 643212 ③ 4567

Productivity

3sustainability
Social5Contribution

A

Very strongly important
12B
Equal important

Very strongly importantEmploying the pair-wise comparison
Systematically evaluate its various elements by comparing them toeach other two at a time, with respect to their impact on anelement above them in the hierarchy.
These pairwise comparisons are carried out for factors to beconsidered, usually not more than 7, and the matrix is completed.
For each category of needs, a pair-wise comparison matrix A wasdesigned, the matrix has to satisfy the logic of preference, that iscalled transitive property.

• aij=wi/wj, each entry aij of A represents the preference weight of criterion i obtained bycomparison with criterion j.
13

Estimating relative weights of elements
Calculate Eigen vectorof the pair-wise comparison matrix A for thecriteria.

The normalized principal Eigen vector is also called priority vector.
The priority vector shows relative weights among the things that we compare.

14

Calculating the degree of consistency
A comparison matrix A is said to be consistent if aij×ajk=aik for all i, j and k. However, weshall not force the strong consistency because we are dealing with human judgment.
Thus,

can not be held completely. Prof. Saaty suggest that we can use λmax toapproximate n.

 Prof. Saaty proved that for completely consistent reciprocal matrix, the largest Eigen value is equal to

the size of comparison matrix, or λmax=n.

15

Calculating the degree of consistency(Cont.)
Then Prof. Saaty gave a measure of consistency, called Consistency Index (C.I.)

as deviation or degree of consistency using the following formula:

Prof. Saaty also proposed that we use this index by comparing it with theappropriate one, called Random Consistency Index (R.I.). Then, he proposed
what is called Consistency Ratio (C.R.) and only accepts a matrix as aconsistent one iff C.R. < 0.1.
 The average random consistency index of sample size 500 matrices is shown in the table below:

16n123456789

10

11R.I.

000.58

0.9

1.12

1.24

1.321.41

1.45

1.49

1.51

16

Business
Environmental Performance17

Evaluation Criteria and Definitions
1st trial
evaluation
criteria

Aspects

Dematerialization

Environmental
Sustainability

De-toxification

2nd evaluation criteria

Definition

Raw material

Percentage of natural material consumption tototal usage

Renewable energy

Percentage of renewable energy to total energy
consumption

Reclaimed water

Percentage of reclaimed water of total natural
water used

Air quality

Emissions of air pollutants, including SOx,
NOx, VOC and other toxics

Water quality

Total volume of water discharged
destination(BOD, COD and other toxics)

Solid waste

Total amount of solid waste and hazardous
18
waste materials

18byEvaluation Criteria and definitions(Cont.)
1st trial
evaluation
criteria

Productivity

SocialContribution

Aspects

Generalproductivity

2nd evaluation criteria

Definition

Labor productivity

Economic value created every year per personin the labor force

Energy productivity

Economic value created every year per unit ofenergy consumed

Water productivity

Economic value created every year per unit ofwater consumed

material productivity

Economic value created every year per unit ofmaterial consume

Social investment

Amount ofcontribution

CSR
Safety(health)(CorporateSocialResponsibility) Green label/ certification

19

Customer/ Consumer

investment

towardsforNumber of industrial incidence inside andoutside
Current number of label/certification
Any channel for customer/consumer
19
number of complaints

Questionnaire
A. Goal
Evaluate the Environmental
Performance of Green Business

B. Criteria
B1. Environmental
Sustainability

B2. Productivity

B3. Social Contribution

C. Aspects
C1. De-materialization

D1. The subcriteria of dematerialization

C2. De-toxification

D2. The sub-criteriaof de-toxification

D1-1. Raw material

D2-1. Air quality

D1-2. RenewableenergyD2-2. Water quality

20 Reclaimed
D1-3.
water

D2-3. Solid waste

C3. General productivity

D3. The sub-criteria ofgeneral productivity

C4. CSR

D4. The sub-criteriaof CSR

D3-1. Labor productivity

D4-1. Social
investment

D3-2. Energy productivity

D4-2. Safety(health)D3-3. Water productivity

D4-3. Green label/certification

D3-4. material productivity

D4-4.20
Customer/
Consumer

The analysis of questionnaire
A sample of 225 experts was surveyed during the study conducted.

Distribution of Respondents Occupation
10%5%2%Company
Education and research

53%
30%

Government

NGO
OthersNote: the category called “others”, for instance, represents people who works inassociation, consultant services institution and so on.
21Data analysis
Consistency check: All calculations were made by Super Decisions software.
 Only accepts a matrix as a consistent one iff(if and only if) C.R. < 0.1.
 Overall Inconsistency(C.R.H)=0.056<0.1 indicates sufficient consistency
for decision.
Level 1

Level 2

Level 3

Environmental
SustainabilityV.S.
Productivity
V.S. Social
Contribution

Dematerialization
V.S. Detoxification

Rawmaterial
V.S.
RenewableenergyV.S.
Reclaimed
water

Air
quality
V.S.
Water
quality
V.S. Solid
waste

Labor productivity
V.S. Energy
productivity
V.S. Water
productivity
V.S. material
productivity

C.I.

00

0.052

0.009

0.045

0.044

C.R.

00

0.089

0.015

0.050

0.049

22

C.R.
H

0.056

Social investment
V.S. Safety(health)
V.S. Green label/certification
V.S. Customer/
Consumer

22

The results
Ranking of 1st trial evaluation criteria:
Weight distribution of each element
Education
Overall CompanyandGovernment NGO Others
researchEnvironmental Sustainability 0.6
0.58
0.6
0.63
0.55
0.73
Productivity
0.2
0.23
0.2
0.22
0.24
0.13
Social Contribution

0.2

0.19

0.2

0.15

0.210.14

Environmental Sustainability
OverallCompany
Education and research
Government
NGOOthers

Productivity

Social Contribution

23

0% 20%
40% 60%80% 100%

The percentage of weightThe Analysis of “EnvironmentalSustainability”

24The results of Environmental Sustainability
Weight distribution of each element
Education
Overall Company
Government NGO Others
and researchDe-materialization
0.5
0.5
0.5
0.5
0.5
0.5
De-toxification
0.5
0.5
0.5
0.50.50.5De-toxification
OverallCompany
Education and research
Government
NGOOthers

De-materialization

0%20%

40%

60%80%The percentage of weight
25

100%

The results of “De-materialization”
Weight distribution of each element

Raw material

Educatio
GovernmOverall Company n andent
research
0.33
0.33
0.33
0.33

Renewable energy
Reclaimed water

0.41
0.26

0.39
0.28

0.41
0.26

0.33
0.33

NGO

Others

0.33
0.41

0.33
0.41

0.26

0.26

Raw material
OverallCompany
Education and research
Government
NGO
OthersRenewable energy

Reclaimed water

0%26

20%

40% 60%The percentage of weight80%100%

The results of “De-toxification”
Weight distribution of each element
Overall Company
Air quality
Water quality
Solid waste

0.54
0.30
0.16

Education andresearch

Government NGOOthers

0.48

0.4

0.52

0.33

0.56

0.34
0.18

0.2
0.2

0.36
0.12

0.41
0.26

0.32
0.12

Air quality
OverallCompany
Education and researchCompanyNGO
OthersWater quality

Solid waste

0%

27

20%

40%60%The percentage of weight

80%

100%

The Analysis of “Productivity”

28General Productivity
Weight distribution of each element
Overall Company

Education andGovernment NGO Others
research

Labor productivity

0.24

0.270.240.25

0.25

0.24

Energy productivity

0.35

Water productivity
material productivity

0.24
0.17

0.30
0.24

0.35
0.24

0.35
0.20

0.35
0.20

0.37
0.24

0.19

0.17

0.20

0.20

0.15

Labor productivity
OverallCompany
Education and research
Government
NGOOthers

Energy productivity
Water productivity
material productivity
0%
2920%

40%
60%
The percentage of weight80%The Analysis of “SocialContribution”

30

The results of “CSR”
Weight distribution of each element

Social investment

Education
Overall CompanyandGovernment NGO Others
research
0.24
0.25
0.28
0.25
0.24 0.28

Safety(health)
Green label/ certification

0.38
0.20

Customer/ Consumer

0.18

0.35
0.20
0.20

0.39
0.18
0.15

0.35
0.20
0.20

0.40
0.19
0.17

0.37
0.23
0.12

Social investment
OverallCompany
Education and research
Government
NGOOthers

Safety(health)
Green label/ certification

Customer/ Consumer
0%
3120%

40%
60%
The percentage of weight

80%Conclusion

Relative Importance of Factors for Environmental
Performance Evaluation of Green Businessranking

Evaluation factors

weight1

Air quality

0.162

2

Renewable energy

0.123

3

Raw material

0.099

4

Water quality

0.09

5

Reclaimed water0.078

6Safety(health)

0.076

7Energy productivity

0.07

8

Solid waste

0.048

Labor productivity

8

Labor productivity

0.048

Solid waste

8

Water productivity

0.048

Green label/ certification

80.048Customer/ Consumer

0.04

material productivity

33
13

Social investment
Green label/certification
Customer/ Consumer

0.036

0%

14

material productivity

0.034

weight12

Air quality
Renewable energy
Raw material
Water quality
Reclaimed water
Safety(health)

Energy productivity
Social investment
Water productivity

5%

10% 15% 20%

Thank you for attention

3434

An Advanced Version of AHP:
ANP (Analytical NetworkProcess)3535

What Is ANP?
The analytic network process (ANP) is a more general form of the analytic

hierarchy process (AHP) used in multi-criteria decision analysis.
AHP structures a decision problem into a hierarchy with a goal, decision
criteria, and alternatives, while the ANP structures it as a network.

The ANP would allow consideration of the dependence and feedback.
 Outer dependence: the parent node and the nodes to be compared are in different
clusters. A directed link appears from the parent node cluster to the other cluster.
 Inner dependence: the parent node and the nodes to be compared are in the samecluster. The cluster is linked to itself and a loop link appears.
 Such feedback can capture the complex effects of interplay in human society, andthis is especially important when risk and uncertainty are involved.

3636

What Is ANP ?(Cont.)
The system of ANP can be divided into two parts, one is control hierarchy which consistsof problem goal and decision criteria where decision criteria are considered to beindependent of each other.
 Control hierarchy is a typical AHP structure and weight of each criteria can be gained bytraditional calculation of AHP method.

The other part is network hierarchy, which consist of element groups that are subjected
to control hierarchy. Network consists of elements that interact and multiinfluence eachother.
 These influences are determined through paired comparisons that lead to priority vectors
included as the columns of a matrix of interactions among the elements of two clusters (or thesame cluster) in which the interactions take place. Then these matrices comprise the entries of asupermatrix to determine the overall priorities of all the elements in the network.

37

37

Control hierarchy and network
hierarchy

38

38How a hierarchy compares to anetwork

Goal_______
Criteria

Alternatives__________
39

39___

ANP Process
Ste • Constructing model and structuring problem
p1
Ste • Developing a conceptual frameworkp2• Setting up the decision network

Ste• Dependence and feedback among elements and clusters will be taken into
p3
consideration.
Ste • Collecting data from experts
p4• Employing the pair-wise comparison• Developing a supermatrix
Ste
p5• Calculating Eigen Value and Eigen vector
Ste • Estimating relative weights of elementsp6
Ste • Calculating the degree of consistencyp7
Ste • Come to a final decision based on the results of this process
p84040AHP VS. ANP
AHP
Relationshipof element• Has a top-down influence
relationship• Each elements/ criteria/alternatives are assumed
independent of all the others• Allows both dependence andfeedback within clusters ofelements (inner dependence) andbetween clusters (outer dependence)

Feature ofstructure• Linear hierarchy• Non-linear network

Computation
method• Pair-wise comparison matrix• Supermatrix

Advantages• Simplify complex decisions• Both qualitative andquantitative information can betaken into consideration• Allows both dependence andfeedback mechanism• Can capture the complex
effects of interplay in humansociety

Disadvantages • Hard to find experts• Lack of representation
41

ANP• Hard to find experts• Lack of representation• Calculation is getting much more
41
complicated