Analytic Hierarchy Process AHP - Business Performance Management
Channel: BPMSG
Date: 2010-04-19

AHP stands for Analytic Hierarchy Process. It is a multi-criteria decision making method, originally developed by Prof. Thomas L. Saaty. AHP derives ratio scales from paired comparisons of criteria, and allows for some small inconsistencies in judgments.
Inputs can be actual measurements, but also subjective opinions. As a result, ratio scales (weightings) and a consistency index will be calculated. For decision making with multiple inputs from different stakeholders, the geometric mean of individual inputs is used.
Mathematically the method is based on the solution of an Eigen value problem. The results of the pair-wise comparisons are arranged in a matrix. The first normalized Eigen vector of the matrix gives the ratio scale (weighting), the largest Eigen value determines the consistency ratio.
An excel sheet, doing the calculation for up to 8 criteria is available from the author.
AHP can be applied in many fields, Evaluation of product features, Cost-Benefit Analysis, Strategy development, Selection of Key Performance Indicators, Deriving weights for a combined performance index, Deriving a consolidated scale of importance from different inputs.