Operations Management For Competitive Advantage © The McGraw-Hill Companies, Inc., 2001 C HASE A QUILANO J ACOBS ninth edition 1 The AHP Method  Multi Criteria Decision Making  Most popular method  AHP: Analytic Hierarchy Process  Saaty 1975  See  Has been used in Iceland for ranking power plant alternatives by profitability and environmental impact

Operations Management For Competitive Advantage © The McGraw-Hill Companies, Inc., 2001 C HASE A QUILANO J ACOBS ninth edition 2 AHP  1. Define all relevant criteria and do pairwise comparison for importance => weights Wi  2. Define all relevant alternatives and do pairwise comparison against each criteria => scores Sij of each alternative for each criteria  3. Check for consistency, revise if necessary  4. Calculate weighted final score Fi = sum(i: Wi*Sij)

Operations Management For Competitive Advantage © The McGraw-Hill Companies, Inc., 2001 C HASE A QUILANO J ACOBS ninth edition 3 The AHP comparison  1Equal  3Minor difference  5Certain difference  7Great difference  9Very great difference

Operations Management For Competitive Advantage © The McGraw-Hill Companies, Inc., 2001 C HASE A QUILANO J ACOBS ninth edition 4 AHP Example: Locating an Aluminium Smelter in Iceland  Criteria: –Labour, community and service –Harbour, roads and infrastructure –Power, closeness to a power plant  Alternatives: –Keilisnes –Eyjafjörður –Reyðarfjörður  See Excel-document

Operations Management For Competitive Advantage © The McGraw-Hill Companies, Inc., 2001 C HASE A QUILANO J ACOBS ninth edition 5

Operations Management For Competitive Advantage © The McGraw-Hill Companies, Inc., 2001 C HASE A QUILANO J ACOBS ninth edition 6

Operations Management For Competitive Advantage © The McGraw-Hill Companies, Inc., 2001 C HASE A QUILANO J ACOBS ninth edition 7

Operations Management For Competitive Advantage © The McGraw-Hill Companies, Inc., 2001 C HASE A QUILANO J ACOBS ninth edition 8