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Chapter 9 Multicriteria Decision Making

Introduction to Management Science 8th Edition by Bernard W. Taylor III. Chapter 9 Multicriteria Decision Making. Chapter Topics. Goal Programming Graphical Interpretation of Goal Programming Computer Solution of Goal Programming Problems with QM for Windows and Excel

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Chapter 9 Multicriteria Decision Making

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  1. Introduction to Management Science 8th Edition by Bernard W. Taylor III Chapter 9 Multicriteria Decision Making Chapter 9 - Multicriteria Decision Making

  2. Chapter Topics • Goal Programming • Graphical Interpretation of Goal Programming • Computer Solution of Goal Programming Problems with QM for Windows and Excel • The Analytical Hierarchy Process Chapter 9 - Multicriteria Decision Making

  3. Overview • Study of problems with several criteria, multiple criteria, instead of asingle objective when making a decision. • Two techniques discussed: goal programming, and the analytical hierarchy process. • Goal programming is a variation of linear programming considering more than one objective (goals) in the objective function. • The analytical hierarchy process develops a score for each decision alternative based on comparisons of each under different criteria reflecting the decision makers preferences. Chapter 9 - Multicriteria Decision Making

  4. Goal Programming Model Formulation (1 of 2) Beaver Creek Pottery Company Example: Maximize Z = $40x1 + 50x2 subject to: 1x1 + 2x2 40 hours of labor 4x2 + 3x2 120 pounds of clay x1, x2 0 Where: x1 = number of bowls produced x2 = number of mugs produced Chapter 9 - Multicriteria Decision Making

  5. Goal Programming Model Formulation (2 of 2) • Adding objectives (goals) in order of importance, thecompany: • Does not want to use fewer than 40 hours of labor per day. • Would like to achieve a satisfactory profit level of $1,600 per day. • Prefers not to keep more than 120 pounds of clay on hand each day. • Would like to minimize the amount of overtime. Chapter 9 - Multicriteria Decision Making

  6. Goal Programming Goal Constraint Requirements • All goal constraints are equalities that include deviational variables d- and d+. • A positive deviational variable (d+) is the amount by which a goal level is exceeded. • A negative deviation variable (d-) is the amount by which a goal level is underachieved. • At least one or both deviational variables in a goal constraint must equal zero. • The objective function in a goal programming model seeks to minimize the deviation from goals in the order of the goal priorities. Chapter 9 - Multicriteria Decision Making

  7. Goal Programming Goal Constraints and Objective Function (1 of 2) • Labor goals constraint (1, less than 40 hours labor; 4, minimum overtime): • Minimize P1d1-, P4d1+ • Add profit goal constraint (2, achieve profit of $1,600): • Minimize P1d1-, P2d2-, P4d1+ • Add material goal constraint (3, avoid keeping more than 120 pounds of clay on hand): • Minimize P1d1-, P2d2-, P3d3+, P4d1+ Chapter 9 - Multicriteria Decision Making

  8. Goal Programming Goal Constraints and Objective Function (2 of 2) Complete Goal Programming Model: Minimize P1d1-, P2d2-, P3d3+, P4d1+ subject to: x1 + 2x2 + d1- - d1+ = 40 40x1 + 50 x2 + d2 - - d2 + = 1,600 4x1 + 3x2 + d3 - - d3 + = 120 x1, x2, d1 -, d1 +, d2 -, d2 +, d3 -, d3 + 0 Chapter 9 - Multicriteria Decision Making

  9. Goal Programming Alternative Forms of Goal Constraints (1 of 2) • Changing fourth-priority goal limits overtime to 10 hours instead of minimizing overtime: • d1- + d4 - - d4+ = 10 • minimize P1d1 -, P2d2 -, P3d3 +, P4d4 + • Addition of a fifth-priority goal- “important to achieve the goal for mugs”: • x1 + d5 - = 30 bowls • x2 + d6 - = 20 mugs • minimize P1d1 -, P2d2 -, P3d3 -, P4d4 -, 4P5d5 -, 5P5d6 - Chapter 9 - Multicriteria Decision Making

  10. Goal Programming Alternative Forms of Goal Constraints (2 of 2) Complete Model with New Goals: Minimize P1d1-, P2d2-, P3d3-, P4d4-, 4P5d5-, 5P5d6- subject to: x1 + 2x2 + d1- - d1+ = 40 40x1 + 50x2 + d2- - d2+ = 1,600 4x1 + 3x2 + d3- - d3+ = 120 d1+ + d4- - d4+ = 10 x1 + d5- = 30 x2 + d6- = 20 x1, x2, d1-, d1+, d2-, d2+, d3-, d3+, d4-, d4+, d5-, d6- 0 Chapter 9 - Multicriteria Decision Making

  11. Goal Programming Graphical Interpretation (1 of 6) Minimize P1d1-, P2d2-, P3d3+, P4d1+ subject to: x1 + 2x2 + d1- - d1+ = 40 40x1 + 50 x2 + d2 - - d2 + = 1,600 4x1 + 3x2 + d3 - - d3 + = 120 x1, x2, d1 -, d1 +, d2 -, d2 +, d3 -, d3 + 0 Figure 9.1 Goal Constraints Chapter 9 - Multicriteria Decision Making

  12. Goal Programming Graphical Interpretation (2 of 6) Minimize P1d1-, P2d2-, P3d3+, P4d1+ subject to: x1 + 2x2 + d1- - d1+ = 40 40x1 + 50 x2 + d2 - - d2 + = 1,600 4x1 + 3x2 + d3 - - d3 + = 120 x1, x2, d1 -, d1 +, d2 -, d2 +, d3 -, d3 + 0 Figure 9.2 The First-Priority Goal: Minimize Chapter 9 - Multicriteria Decision Making

  13. Goal Programming Graphical Interpretation (3 of 6) Minimize P1d1-, P2d2-, P3d3+, P4d1+ subject to: x1 + 2x2 + d1- - d1+ = 40 40x1 + 50 x2 + d2 - - d2 + = 1,600 4x1 + 3x2 + d3 - - d3 + = 120 x1, x2, d1 -, d1 +, d2 -, d2 +, d3 -, d3 + 0 Figure 9.3 The Second-Priority Goal: Minimize Chapter 9 - Multicriteria Decision Making

  14. Goal Programming Graphical Interpretation (4 of 6) Minimize P1d1-, P2d2-, P3d3+, P4d1+ subject to: x1 + 2x2 + d1- - d1+ = 40 40x1 + 50 x2 + d2 - - d2 + = 1,600 4x1 + 3x2 + d3 - - d3 + = 120 x1, x2, d1 -, d1 +, d2 -, d2 +, d3 -, d3 + 0 Figure 9.4 The Third-Priority Goal: Minimize Chapter 9 - Multicriteria Decision Making

  15. Goal Programming Graphical Interpretation (5 of 6) Minimize P1d1-, P2d2-, P3d3+, P4d1+ subject to: x1 + 2x2 + d1- - d1+ = 40 40x1 + 50 x2 + d2 - - d2 + = 1,600 4x1 + 3x2 + d3 - - d3 + = 120 x1, x2, d1 -, d1 +, d2 -, d2 +, d3 -, d3 + 0 Figure 9.5 The Fourth-Priority Goal: Minimize Chapter 9 - Multicriteria Decision Making

  16. Goal Programming Graphical Interpretation (6 of 6) Goal programming solutions do not always achieve all goals and they are not optimal, they achieve the best or most satisfactory solution possible. Minimize P1d1-, P2d2-, P3d3+, P4d1+ subject to: x1 + 2x2 + d1- - d1+ = 40 40x1 + 50 x2 + d2 - - d2 + = 1,600 4x1 + 3x2 + d3 - - d3 + = 120 x1, x2, d1 -, d1 +, d2 -, d2 +, d3 -, d3 + 0 x1 = 15 bowls x2 = 20 mugs d1- = 15 hours Chapter 9 - Multicriteria Decision Making

  17. Goal Programming Computer Solution Using QM for Windows (1 of 3) Minimize P1d1-, P2d2-, P3d3+, P4d1+ subject to: x1 + 2x2 + d1- - d1+ = 40 40x1 + 50 x2 + d2 - - d2 + = 1,600 4x1 + 3x2 + d3 - - d3 + = 120 x1, x2, d1 -, d1 +, d2 -, d2 +, d3 -, d3 + 0 Exhibit 9.1 Chapter 9 - Multicriteria Decision Making

  18. Goal Programming Computer Solution Using QM for Windows (2 of 3) Exhibit 9.2 Chapter 9 - Multicriteria Decision Making

  19. Goal Programming Computer Solution Using QM for Windows (3 of 3) Exhibit 9.3 Chapter 9 - Multicriteria Decision Making

  20. Goal Programming Computer Solution Using Excel (1 of 3) Exhibit 9.4 Chapter 9 - Multicriteria Decision Making

  21. Goal Programming Computer Solution Using Excel (2 of 3) Exhibit 9.5 Chapter 9 - Multicriteria Decision Making

  22. Goal Programming Computer Solution Using Excel (3 of 3) Exhibit 9.6 Chapter 9 - Multicriteria Decision Making

  23. Goal Programming Solution for Altered Problem Using Excel (1 of 6) Minimize P1d1-, P2d2-, P3d3-, P4d4-, 4P5d5-, 5P5d6- subject to: x1 + 2x2 + d1- - d1+ = 40 40x1 + 50x2 + d2- - d2+ = 1,600 4x1 + 3x2 + d3- - d3+ = 120 d1+ + d4- - d4+ = 10 x1 + d5- = 30 x2 + d6- = 20 x1, x2, d1-, d1+, d2-, d2+, d3-, d3+, d4-, d4+, d5-, d6- 0 Chapter 9 - Multicriteria Decision Making

  24. Goal Programming Solution for Altered Problem Using Excel (2 of 6) Exhibit 9.7 Chapter 9 - Multicriteria Decision Making

  25. Goal Programming Solution for Altered Problem Using Excel (3 of 6) Exhibit 9.8 Chapter 9 - Multicriteria Decision Making

  26. Goal Programming Solution for Altered Problem Using Excel (4 of 6) Exhibit 9.9 Chapter 9 - Multicriteria Decision Making

  27. Goal Programming Solution for Altered Problem Using Excel (5 of 6) Exhibit 9.10 Chapter 9 - Multicriteria Decision Making

  28. Goal Programming Solution for Altered Problem Using Excel (6 of 6) Exhibit 9.11 Chapter 9 - Multicriteria Decision Making

  29. Analytical Hierarchy Process Overview • AHP is a method for ranking several decision alternatives and selecting the best one when the decision maker has multiple objectives, or criteria, on which to base the decision. • The decision maker makes a decision based on how the alternatives compare according to several criteria. • The decision maker will select the alternative that best meets his or her decision criteria. • AHP is a process for developing a numerical score to rank each decision alternative based on how well the alternative meets the decision maker’s criteria. Chapter 9 - Multicriteria Decision Making

  30. Analytical Hierarchy Process Example Problem Statement • Southcorp Development Company shopping mall site selection. • Three potential sites: • Atlanta • Birmingham • Charlotte. • Criteria for site comparisons: • Customer market base. • Income level • Infrastructure Chapter 9 - Multicriteria Decision Making

  31. Analytical Hierarchy Process Hierarchy Structure • Top of the hierarchy: the objective (select the best site). • Second level: how the four criteria contribute to the objective. • Third level: how each of the three alternatives contributes to each of the four criteria. Chapter 9 - Multicriteria Decision Making

  32. Analytical Hierarchy Process General Mathematical Process • Mathematically determine preferences for each site for each criteria. • Mathematically determine preferences for criteria (rank order of importance). • Combine these two sets of preferences to mathematically derive a score for each site. • Select the site with the highest score. Chapter 9 - Multicriteria Decision Making

  33. Analytical Hierarchy Process Pairwise Comparisons • In a pairwise comparison, two alternatives are compared according to a criterion and one is preferred. • A preference scale assigns numerical values to different levels of performance. Chapter 9 - Multicriteria Decision Making

  34. Analytical Hierarchy Process Pairwise Comparisons (2 of 2) Table 9.1 Preference Scale for Pairwise Comparisons Chapter 9 - Multicriteria Decision Making

  35. Analytical Hierarchy Process Pairwise Comparison Matrix • A pairwise comparison matrix summarizes the pairwise comparisons for a criteria. Income Level Infrastructure Transportation A B C Chapter 9 - Multicriteria Decision Making

  36. Analytical Hierarchy Process Developing Preferences Within Criteria (1 of 3) • In synthesization, decision alternatives are prioritized with each criterion and then normalized: Chapter 9 - Multicriteria Decision Making

  37. Analytical Hierarchy Process Developing Preferences Within Criteria (2 of 3) Table 9.2 The Normalized Matrix with Row Averages Chapter 9 - Multicriteria Decision Making

  38. Analytical Hierarchy Process Developing Preferences Within Criteria (3 of 3) Table 9.3 Criteria Preference Matrix Chapter 9 - Multicriteria Decision Making

  39. Analytical Hierarchy Process Ranking the Criteria (1 of 2) Pairwise Comparison Matrix: Table 9.4 Normalized Matrix for Criteria with Row Averages Chapter 9 - Multicriteria Decision Making

  40. Analytical Hierarchy Process Ranking the Criteria (2 of 2) Preference Vector: Market Income Infrastructure Transportation Chapter 9 - Multicriteria Decision Making

  41. Analytical Hierarchy Process Developing an Overall Ranking • Overall Score: • Site A score = .1993(.5012) + .6535(.2819) + .0860(.1790) + .0612(.1561) = .3091 • Site B score = .1993(.1185) + .6535(.0598) + .0860(.6850) + .0612(.6196) = .1595 • Site C score = .1993(.3803) + .6535(.6583) + .0860(.1360) + .0612(.2243) = .5314 • Overall Ranking: Chapter 9 - Multicriteria Decision Making

  42. Analytical Hierarchy Process Summary of Mathematical Steps • Develop a pairwise comparison matrix for each decision alternative for each criteria. • Synthesization • Sum the values of each column of the pairwise comparison matrices. • Divide each value in each column by the corresponding column sum. • Average the values in each row of the normalized matrices. • Combine the vectors of preferences for each criterion. • Develop a pairwise comparison matrix for the criteria. • Compute the normalized matrix. • Develop the preference vector. • Compute an overall score for each decision alternative • Rank the decision alternatives. Chapter 9 - Multicriteria Decision Making

  43. Goal Programming Excel Spreadsheets (1 of 4) Exhibit 9.12 Chapter 9 - Multicriteria Decision Making

  44. Goal Programming Excel Spreadsheets (2 of 4) Exhibit 9.13 Chapter 9 - Multicriteria Decision Making

  45. Goal Programming Excel Spreadsheets (3 of 4) Exhibit 9.14 Chapter 9 - Multicriteria Decision Making

  46. Goal Programming Excel Spreadsheets (4 of 4) Exhibit 9.15 Chapter 9 - Multicriteria Decision Making

  47. Scoring Model Overview • Each decision alternative graded in terms of how well it satisfies the criterion according to following formula: • Si = gijwj • where: • wj = a weight between 0 and 1.00 assigned to criteria j; 1.00 important, 0 unimportant; sum of total weights equals one. • gij = a grade between 0 and 100 indicating how well alternative i satisfies criteria j; 100 indicates high satisfaction, 0 low satisfaction. Chapter 9 - Multicriteria Decision Making

  48. Scoring Model Example Problem • Mall selection with four alternatives and five criteria: • S1 = (.30)(40) + (.25)(75) + (.25)(60) + (.10)(90) + (.10)(80) = 62.75 • S2 = (.30)(60) + (.25)(80) + (.25)(90) + (.10)(100) + (.10)(30) = 73.50 • S3 = (.30)(90) + (.25)(65) + (.25)(79) + (.10)(80) + (.10)(50) = 76.00 • S4 = (.30)(60) + (.25)(90) + (.25)(85) + (.10)(90) + (.10)(70) = 77.75 • Mall 4 preferred because of highest score, followed by malls 3, 2, 1. Chapter 9 - Multicriteria Decision Making

  49. Scoring Model Excel Solution Exhibit 9.16 Chapter 9 - Multicriteria Decision Making

  50. Goal Programming Example Problem Problem Statement • Public relations firm survey interviewer staffing requirements determination. • One person can conduct 80 telephone interviews or 40 personal interviews per day. • $50/ day for telephone interviewer; $70 for personal interviewer. • Goals (in priority order): • At least 3,000 total interviews. • Interviewer conducts only one type of interview each day. Maintain daily budget of $2,500. • At least 1,000 interviews should be by telephone. • Formulate a goal programming model to determine number of interviewers to hire in order to satisfy the goals, and then solve the problem. Chapter 9 - Multicriteria Decision Making

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