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Professor
OK,
uh let’s um, let’s start. Uh, tonight we’re gonna talk about one
approach to structuring decision-making on a specific topic, sort
of um…oh when you’re in a decision-making process in a business
situation, and you’ve got all the participants there sort of voicing
opinions and negotiating, and there are lots of different factors
to consider in your decision…uh, the technique we’re gonna talk
about is uh, it’s a way to sort of structure that decision and
arrive at a better decision. It’s called AHP, or Analytic, um,
Analytic Hierarchy Process.
Now,
the first step is to develop, a hierarchy by breaking the problem
down into its components, and then prioritizing the components,
as you’ll see.
Now there’s some AHP software out there that lets you do
the math, but I’m not gonna get into that level of detail now.
The important thing that I want to talk about is not the mathematics
of it so much as the concept.
I, I want you to understand the logic behind Analytic Hierarchy
Process and the basic approach.
OK…so
uh, let’s say, if I was trying to buy a house, a house is actually
a pretty good example. It’s not a good example for a business
class, necessarily, but it’ll certainly do for today.
You,
you start with your main goal. An’ then you break it down into
smaller parts. All right…so uh, taking our example of, of buying
a house…I would have to determine the goal for the house-hunting
effort, uh choose the house that would be uh,…most, well, the
best fit for my family. What would be your goal in trying to find
a house? Well, uh let’s just say, make the best choice in, in
buying a new house. Now, now that’s the goal.
So
now that you’ve established a goal, you establish your criteria.
And um, under criteria I would list for me what were the important
factors that will influence the decision. And…they would be things
like uh, like the cost. And, uh what else? Uh, location. Location,
I think, would typically be one in most of our models, and maybe
one more. How about floor plan??The layout of the rooms. So, so
we have cost, location, floor plan…those might be our key criteria
for choosing a house.
Then
you get down to the subcriteria under each of these three criteria.
So, so let’s say, under floor plan, the subcriteria are, you want
a big kitchen, 3 bedrooms, a basement. And after you’ve determined
all the criteria and subcriteria, um then you go back and you
start making pairwise comparisons between them…uh, judgments about
two of these things at a time.
Of the houses you’re considering, uh, is cost more important than
location or, say, one has a big kitchen but only two bedrooms.
Is that OK?
You move through the hierarchy making judgments about 1
pair of choices at a time. You see, it, it it’s designed to reflect
the way people actually think…humans are much more,…capable of
making relative rather than absolute judgments. Basically, we’ve
reduced a rather complex decision into a series of one-on-one
comparisons.
Um,
so what AHP does is it requires me to develop a schematic model
of what I’m looking for. So, so, right off the bat I have to articulate
and think about and identify these factors, these criteria.
And
when I start comparing the criteria, these factors, um, it enables
me to come up with the relative importance of each factor at a
given level in the model. So, in other words, what the model does
is it helps us set our priorities, and it forces us to make our
priorities explicit. It, it not, not only helps make the best
decision, we’re also a lot clearer on why we made the decision.
And understanding why we made the decision makes it easier to
convince the boss or the shareholders that it’s a good decision.
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