AHP was created at the Wharton School of Business by Dr. Thomas Saaty; it is based on mathematics and psychology, and has been applied to thousands of decisions. Decisions including everything from corporate budget planning and vendor selection to player selection in the NFL.
In the hierarchy, the overall goal of the decision is at the top of the model and strategic objectives are in the higher levels. Evaluation criteria are in the middle levels, and alternative choices are at the bottom. The process takes place as follows:
Set priorities on each level of the hierarchy using pair-wise comparisons.
At a given level on the hierarchy, decision makers evaluate each pair of decision factors, and make judgments as to their relative importance.
Test the impact of changing priorities using sensitivity analysis
Sensitivity analysis is extremely valuable for testing the impact of changing priorities on alternative business decision choices.
Define business rules for budget allocation for a portfolio-based framework
Decision makers can define business rules for budget allocation. They can then allocate resources across investment alternatives to maximize business value.