Academic journal article Journal of Business Economics and Management

Application of AHP Technique

Academic journal article Journal of Business Economics and Management

Application of AHP Technique

Article excerpt

1. Introduction

Social and economic problems associated with evaluation of social and economic development of states and regions, commercial activities and strategic potential of enterprises, as well as the comparison of investment projects based on their effectiveness, etc. are very complicated because of the specific nature of the considered phenomena. They cannot be measured or evaluated by a single quantity or criterion since there can hardly be found a feature integrating all essential properties of these phenomena. In recent years, the application of multicriteria quantitative evaluation methods to solving these problems has grown considerably (Figueira et al. 2005; Ginevicius 2008; Ginevicius et al. 2008b; Ginevicius, Podvezko 2007a, 2008a, 2008b; Kaklauskas et al. 2006, 2007a; Podvezko 2006, 2008; Ustinovichius et al. 2007; Zavadskas, Vilutiene 2006; Zavadskas et al. 2008a,b; Turskis et al. 2009).

Various methods of integrating the particular criteria describing the considered object into a single generalizing criterion have been offered and quite a few different multicriteria evaluation methods have been developed.

These methods are based on the statistical data on the criteria describing the compared objects (alternatives) [A.sub.j] (j = 1, 2, ..., n), or expert estimates and the criteria weights (significances) [[omega].sub.i] (i = 1, 2, ..., m), where m is the number of criteria, n is the number of the objects (alternatives) compared. The evaluation is aimed at ranking the alternatives [A.sub.j] by using quantitative multicriteria methods for the particular purpose of the research.

The criterion weights [[omega].sub.i] as one of two major components of quantitative multicriteria methods strongly influence the evaluation results. In practice, these weights are determined for assessing the economic development of various states and their regions (Ginevicius, Podvezko 2008c; Ginevicius et al. 2006), the effectiveness of commercial activities of enterprises and their strategic potential (Ginevicius, Podvezko 2006) as well as for comparing various investment projects and technologies (Ginevicius et al. 2007), etc.

The influence of the criteria describing a particular object with the aim of investigation differs considerably, therefore, the weights of the criteria used should be determined. Usually, the so-called subjective evaluation technique is applied, when the criteria weights are determined by experts, though objective and generalized evaluation methods are also used (Hwang, Yoon 1981; Ma et al. 1999).

The values of the criteria weights and the accuracy of evaluation results largely depend on the way of determining the criteria weights and the number of criteria because it is difficult for an expert to determine accurately the interrelationships between the criteria weights, when the number of criteria is continually growing.

There are several theoretical and practical approaches to determining the criteria weights by experts. These are ranking, direct weight determination and pairwise comparison (Zavadskas, Kaklauskas 2007; Ginevicius, Podvezko 2004, 2006; Kaklauskas et al. 2007b; Banaitiene et al. 2008; Viteikiene, Zavadskas 2007).

Pairwise comparison of criteria is a specific approach to determining the criteria weights. It is based on pairwise comparison of all evaluation criteria [R.sub.i] and [R.sub.j] (i, j = 1, 2, ..., m) by experts. The main advantage of this approach is a possibility to compare the criteria in pairs rather than all at a time. This method also allows the conversion of qualitative estimates elicited from experts to quantitative estimates, implying that the values of the criteria weights can be calculated.

The simplest methods use a two-point 0-1 scale (when one criterion is more significant than another, or vice versa) (Beshelev, Gurvish 1974), while the most sophisticated and mathematically grounded AHP method developed by T. …

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