Strategic Decision Making and Negotiations

Summary Chapter 4
Decisions Involving Multiple Objectives : Alternatives to
SMART







Mattheus Biondi Mulyadi
29113056





Young Professional 49 B


The Simple Multi Attribute Rating Technique (SMART)
SMART method was first introduced by Edward in 1971 and was named as the
SMART method in 1977 since its establish, the SMART method has been developed
into a method of SMARTS (Simple Multi-Attribute Rating Technique Swing). The
SMART technique is based on a linear additive model. This means that an overall
value of a given alternative is calculated as the total sum of the performance score
(value) of each criterion (attribute) multiplied with the weight of that criterion.
The main stages in the analysis are :
Stage 1: Identify the decision-maker
Stage 2: Identify the issue of issues: Utility depends on the context and
purpose of the decision
Stage 3: Identify the alternatives: This step would identify the outcomes of
possible actions, a data gathering process.
Stage 4: Identify the criteria: It is important to limit the dimensions of value.
This can be accomplished by restating and combining criteria, or by omitting
less important criteria.
Stage 5: Assign values for each criteria: For decisions made by one person,
this step is fairly straightforward. Ranking is a decision task that is easier than
developing weights, for instance.
Stage 6: Determine the weight of each of the criteria: The most important
dimension would be assigned an importance of 100.
Stage 7: Calculate a weighted average of the values assigned to each
alternative: This step allows normalization of the relative importance into
weights summing to 1.
Stage 8: Make a provisional decision
Stage 9: Perform sensitivity analysis

In SMART, ratings of alternatives are assigned directly, in the natural scales of the
criteria. For instance, when assessing the criterion "cost" for the choice between
different road layouts, a natural scale would be a range between the most expensive
and the cheapest road layout. In order to keep the weighting of the criteria and the
rating of the alternatives as separate as possible, the different scales of criteria need to
be converted into a common internal scale. In SMART, this is done mathematically
by the decision-maker by means of a Value Function.

SMART Exploiting Ranks (SMARTER)
Methods SMARTER (Simple Multi-Attribute Rating Technique Exploiting Rank) is
an extension of previous methods, the method of SMART (Simple Multi-Attribute
Rating Technique). Then after modified and improved by Baron Edward and in 1994
became the method SMARTER (Simple Multi-Attribute Rating Technique Exploiting
Rank). The assessment of vaIue functions and swing weights in SMART can
sometimes be a difficult task, and decision-makers may not always be confident about
it. Because of this, Edwards and Barron have suggested a simplified form of SMART
named SMARTER (SMART Exploiting Ranks).Using the SMARTER technique the
decision-makers places the criteria into an importance order: for example Criterion 1
is more important than Criterion 2, which is more important than Criterion 3, which is
more important Criterion 4 and so on.

SMART & SMARTER
The difference between the methods SMARTER with SMART and SMARTS
method lies in how the weighting. Weighting the criteria on all three methods
depending on the priority order in which the attributes of the first sequence is
occupied by the attributes that are considered most important. In SMART and
SMARTER weighting method is given directly by decision makers. But the weighting
procedure whereby each considered disproportionate weight given should reflect the
distance and the priority of each criterion appropriately. To overcome this, the method
used SMARTER weighting formula Rank Order Centroid (ROC).

Weighting ROC (Rank Order Centroid)
ROC based on the relative importance or priority of the criteria. According to Jeffreys
and Cockfield (2008), ROC technique gives weight to each criterion according to the
ranking based on the level of priority. Usually formed with the statement "Criteria 1 is
more important than criterion 2, then more important than criterion 3 and so on until n
criteria its written Cr1> CR2> Cr3> ...> CRN. to determine the weight, given the
same rules that W1> W2> W3> ...> Wn which W1 is the weight for criterion C1.

The analytic hierarchy process (AHP)
AHP is a decision support models developed by Thomas L. Saaty. Decision support
models will describe the multi-factor problem or a complex multi-criteria into a
hierarchy, according to Saaty (1993), the hierarchy is defined as a representation of a
complex problem in a multi-level structure where the first level is the goal, followed
by factor levels, criteria, sub-criteria, and so on down to the last level of the
alternatives. With the hierarchy, a complex problem can be decomposed into their
groups then arranged into a hierarchy so that the problem will appear more structured
and systematic.

An overview of the AHP
AHP is often used as a method of solving the problem compared to the other methods
because of the following reasons:
Hierarchical structure, as consequential of criteria selected, up to the most in
the sub-criteria.
Taking into account the tolerance limit of validity to the inconsistencies of
various criteria and the alternative chosen by decision makers.
Taking into account the durability of the output sensitivity analysis decision-
making.

Once the decision maker and the alternative courses of action have been identified,
then the overview will shown the main stages of the method below:
Stage 1: Set up the decision hierarchy. This is similar to a value tree in
SMART but, as we will see, the main difference is that the alternative courses
of action also appear on the hierarchy at its lowest level.
Stage 2: Make pairwise comparisons of attributes and alternatives. This is
used to determine the relative importance of attributes and also to compare
how well the options perform on the different attributes
Stage 3: Transform the comparisons into weights and check the consistency of
the decision makers comparisons. Use the weights to obtain scores for the
different options and make a provisional decision.
Stage 4: Use the weights to obtain scores for the different options and make a
provisional decision.
Stage 5: Perform sensitivity analysis. This will enable the decision maker to
examine how robust the provisional decision is to changes in the ratings of
importance and preference.
Note that stages 3, 4 and 5 require a computer package, like EXPERT
CHOICE, because of the complexity of the calculations that are involved.

AHP is based on four main axioms:
1. Axiom Reciprocal
This axiom states if the PC (EA, EB) is a pairwise comparison between element A
and element B, taking into account the elements of C as a parent, indicating how
many times the property owned elements of A to B, then the PC (EB, EA) = 1 /
PC (EA, EB). For example, if A is 5 times greater than B, then B = 1/5 A.
2. Axiom Homogeneity
This axiom states that the elements being compared do not differ too much. If the
difference is too large, the results obtained contain a high error rate. When the
hierarchy is built, we must try to arrange the elements so that the elements do not
produce results with low accuracy and high inconsistency.
3. Axiom Dependence
This axiom states that the priority elements in the hierarchy does not depend on
the element level below. This axiom allows us to apply the principle of
hierarchical composition.
4. Axiom Expectation
The Decision makes should make sure that their ideas are adequately represented
in the decision model. This is similar to the concept of requisite decision modeling
in SMART.

Strengths and criticisms of the AHP
It can be seen that the AHP is fundamentally different to SMART in many respects.
We next consider the relative strengths of the AHP and then look at the main
criticisms which have been made of the technique.
- The relative strengths of the AHP
1. Simplicity of pairwise comparisons.
The use of pairwise comparisons means that the decision maker can focus, in
turn, on each small part of the problem. Only two attributes or options have to
be considered at any one time so that the decision makers judgmental task is
simplified.
2. Redundancy allows consistency to be checked.
The AHP requires more comparisons to be made by the decision maker than
are needed to establish a set of weights. For example, if a decision maker
indicates that attribute A is twice as important as B, and B, in turn, is four
times as important as C, then it can be inferred that A is eight times more
important than C. However, by also asking the decision maker to compare A
with C it is possible to check the consistency of the judgments. It is considered
to be good practice in decision analysis to obtain an input to a decision model
by asking for it in several ways and then asking the decision maker to reflect
on any inconsistencies in the judgments put forward.
3. Versatility.
The wide range of applications of the AHP is evidence of its versatility. In
addition to judgments about importance and preference, the AHP also allows
judgments about the relative likelihood of events to be made. This has allowed
it to be applied to problems involving uncertainty and also to be used in
forecasting.

- Criticisms of the AHP
1. Conversion from verbal to numeric scale.
Decision makers using the verbal method of comparison will have their
judgments automatically converted to the numeric scale, but the
correspondence between the two scales is based on untested assumptions.
2. Problems of 1 to 9 scale.
Experimental work suggests that when one attribute or option is extremely
more important than another then ratios of 1 to 3 or 1 to 5 are more
appropriate than the 1 to 9 ratio assumed by the AHP.
3. Meaningfulness of responses to questions.
Unlike SMART, weights are elicited in the AHP without reference to the
scales on which attributes are measured. This may mean that the questions are
interpreted in different, and possibly erroneous, ways by decision makers.
4. New alternatives can reverse the rank of existing alternatives.
This issue, which is related to the last point, has attracted much attention.
These rank several cannot occur in SMART, but some of decision makers,
they argued, would consider the SMART definition to be the reasonable one.
5. Number of comparisons required may be large.
While the redundancy built into the AHP is an advantage, it may also require a
large number of judgments from the decision maker.

Conclusion
The AHP is a versatile decision aid which can handle problems involving both
multiple objectives and uncertainty. It is popular with many decision makers who find
the questions it poses easy to answer and the EXPERT CHOICE software user
friendly. As we know that AHP is some alternative methods to SMART. We saw that
each of these alternative contains attractive features such as automatic consistency
checks on the decision-makers judgement, avoidance of the need to specify weights
or facilities allowing decision-makers to express preferences using words rather than
number. However, none of the methods was clearly superior to the others on all
counts. Because of this, there has been a convergence between some of techniques in
an attempt to embrance the best features of each. Whether the AHP is the best
technique to support this process is a question which is bound to continue to attract
debate and controversy. But similarly, some commercial software products now
include facilities for both SMART and the AHP, allowing decision-makers to have
considerable flexibility in the way they tackle different decision problem.