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Using the Analytic Hierarchy Process (AHP) to Select and Prioritize Projects in a
Portfolio

Article · January 2010

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 USING THE ANALYTIC HIERARCHY PROCESS
(AHP) TO SELECT AND PRIORITIZE
PROJECTS IN A PORTFOLIO

Ricardo Viana Vargas, MSc, IPMA-B, PMP

Professor – Fundação Getúlio Vargas (FGV) – Brasil
Professor – Fundação Instituto de Administração (FIA – USP) - Brasil
Sócio Diretor – Macrosolutions – Brasil
[email protected]

©2010 by Ricardo Viana Vargas. All Rights Reseved

References
PMI Global Congress 2010 – North America
Washington - DC – EUA – 2010

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SUMMARY
The objective of this paper is to present, discuss and apply the principles and
techniques of the Analytic Hierarchy Process (AHP) in the prioritization and selection of
projects in a portfolio. AHP is one of the main mathematical models currently available to
support the decision theory.

When looking into how organizations decide over which projects to execute, we can
notice a constant desire to have clear, objective and mathematical criteria (HAAS &
MEIXNER, 2005). However, decision making is, in its totality, a cognitive and mental
process derived from the most possible adequate selection based on tangible and
intangible criteria (SAATY, 2009), which are arbitrarily chosen by those who make the
decisions.

This paper also discusses the importance and some possible criteria for prioritizing
projects, and by using a fictitious project prioritization example, it demonstrates AHP in a
step-by-step manner, where the resulting priorities are shown and the possible
inconsistencies are determined.

THE IMPORTANCE OF PROJECT SELECTION AND PRIORITIZATION

One of the main challenges that organizations face today resides in their ability to
choose the most correct and consistent alternatives in such a way that strategic
alignment is maintained. Given any specific situation, making the right decisions is
probably one of the most difficult challenges for science and technology
(TRIANTAPHYLLOU, 2002).

When we consider the ever changing dynamics of the current environment like we have
never seen before, making the right choices based on adequate and aligned objectives
constitutes a critical factor, even for organizational survival.

Basically the prioritization of projects in a portfolio is nothing more than an ordering

scheme based on a benefit cost relationship of each project. Projects with higher
benefits, when compared to their costs, will have a higher priority. It’s important to
observe that a benefit cost relationship does not necessarily mean the use of exclusive
financial criteria like the widely known benefit cost ratio, but instead a broader concept of
the reaped benefits from executing the project and their related efforts.

Since organizations belong to a complex and varying context, often times even chaotic,
the challenge of the aforementioned definition resides exactly in determining what are
costs and benefits to any given organization.

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 Possible Definitions for Low Costs Possible Definitions for High Benefits
Cheaper More profitable
Less resource needs Greater return of investment
Easier to be executed Increase in the number of customers
Less complex Increase in competitiveness
Less internal resistance Improvements for the society
Less bureaucratic Increase in Market Share
Less risks (threats) Executives and shareholders happier
When analyzing the above table, one can observe that the different dimensions
demonstrate how complex it is to come up with an exact translation for the meaning of
low cost and high benefits. That is the reason why a unique criterion or translation is not
viable enough to determine which project(s) should or should not be executed. Thus it is
necessary to employ a multi-criteria analysis (TRIANTAPHYLLOU, 2002) which allows for
decisions while taking into consideration the different dimensions and organizational
needs altogether.

PMI’s Standard for Portfolio Management (PMI, 2008) says that the scope of a project
portfolio must stem from the strategic objectives of the organization. These objectives
must be aligned with the business scenario which in turn may be different for each
organization. Consequently, there is no perfect model that covers the right criteria to be
used for any type of organization when prioritizing and selecting its projects. The criteria
to be used by the organization should be based on the values and preferences of its
decision makers.

CURRENT CRITERIA USED IN THE PRIORIZATION OF PROJECTS

Although decisions are based on values and preferences of the decision makers, a set of
criteria or specific objectives can be used while prioritizing projects and determining the
real meaning of an optimal relationship between benefits and costs.

The main criteria groups are:

Financial – A group of criteria with the objective of capturing the financial benefits of
projects. They are directly associated with costs, productivity and profit measures. A few
examples are:

 Return on Investment (ROI) – It is the percentage of the profit margin of the

project. It allows comparing the financial return of projects with different
investments and profits.

 Profit (currency) – The value (in currency) of the financial profit gained by the
project. A project may have a smaller ROI but its nominal profit can be bigger.

 Net Present Value (NPV) – It is the difference between the project benefits and
costs taking into consideration that all incomes and expenses are converted to

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 be realized in the current date. In order to do so, it is necessary to bring all future
values to the current date by using a given interest rate. That allows the
assessment and comparison between projects which have future incomes and
expenses from different time periods.

 Payback – It is the number of time in periods necessary to recover all of the

original project investments.

 Financial Benefit / Cost Rate – It is the ratio between the present value of the
benefits and the present value of the costs. The higher the ratio, the more viable
is the project under the perspective of benefit/costs.

Strategic - A group of criteria directly associated with the strategic objectives of the
organization. The strategic criteria/objectives are determined by methods used to
cascade corporate strategy like the Balanced Scorecard. They differ from the financial
criteria because strategic criteria are specific for any organization. Organizations with
different strategies will certainly have different prioritization criteria. Some examples may
be to increase the capacity to compete in international markets, to use eco-friendly
practices, to optimize internal processes, to cut expenses in comparison with
benchmarking competitors, to improve the reputation of products and services, etc.

Risks (Threats) – It determines the level of risk tolerance that an organization accepts to
execute a project. The threat-based risk assessment criteria can also incorporate the
assessment of opportunities (HILSON, 2003). However, often times the assessment of
opportunities that a project can yield are already covered and taken care of by the
strategic criteria. Another equally possible perspective for this criterion entangles the
organizational risk of not undertaking the project.

Urgency - It determines the urgency level of the project. Projects considered to be

urgent require immediate decision and action, and so they have a higher priority than
projects that are not urgent.

Stakeholder commitment – A group of criteria that aims to assess the level of

stakeholder commitment towards the project. The higher the commitment to the project,
the higher priority the project receives. Commitment may be assessed in a broad
manner where all stakeholders are considered as a unique group, or it can be
decomposed into different stakeholder groups, like for example:

 Customer commitment
 Community commitment
 Organizational commitment
 Regulatory bodies
 Project team commitment
 Project manager commitment

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Technical Knowledge – It assesses the technical knowledge necessary to execute the
project. The more technical knowledge readily available, the easier will it be to execute
any given project and, consequently, it will cause the project to use fewer resources. It is
important to note that, if it is necessary to establish criteria or objectives related to the
learning and growth process, these criteria need to be associated with the organization’s
strategic criteria, and not with any technical knowledge.

ANALYTIC HIERARCY PROCESS

The multi-criteria programming made through the use of the Analytic Hierarchy Process
is a technique for decision making in complex environments where many variables or
criteria are considered in the prioritization and selection of alternatives or projects.

AHP was developed in the 70’s by Thomas L. Saaty and has been since then
extensively studied, being currently used in decision making for complex scenarios,
where people work together to make decisions when human perceptions, judgments
and consequences have a long term repercussion (BHUSHAN & RAI, 2004).

The application of AHP begins with a problem being decomposed into a hierarchy of
criteria so as to be more easily analyzed and compared in an independent manner
(Figure 1). After this logical hierarchy is constructed, the decision makers can
systematically assess the alternatives by making pair-wise comparisons for each of the
chosen criteria. This comparison may use concrete data from the alternatives or human
judgments as a way to input subjacent information (SAATY, 2008).

Goal

Criterion 01 Criterion 02 Criterion 03 Criterion 04

Alternative 01 Alternative 02 Alternative 03

Figure 1 – Example of a hierarchy of criteria/objectives

AHP transforms the comparisons, which are most of the times empirical, into numeric
values that are further processed and compared. The weight of each factor allows the
assessment of each one of the elements inside the defined hierarchy. This capability of
converting empirical data into mathematical models is the main distinctive contribution of
the AHP technique when contrasted to other comparing techniques.

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After all comparisons have been made, and the relative weights between each one of
the criteria to be evaluated have been established, the numerical probability of each
alternative is calculated. This probability determines the likelihood that the alternative has
to fulfill the expected goal. The higher the probability, the better chances the alternative
has to satisfy the final goal of the portfolio.

The mathematical calculation involved in the AHP process may at first seem simple, but
when dealing with more complex cases, the analyses and calculations become deeper
and more exhaustive.

THE COMPARISON SCALE (SAATY SCALE)

The comparison between two elements using AHP can be done in different ways
(TRIANTAPHYLLOU & MANN, 1995). However, the relative importance scale between
two alternatives suggested by Saaty (SAATY, 2005) is the most widely used. Attributing
values that vary from 1 to 9, the scale determines the relative importance of an
alternative when compared to another alternative, as we can see in Table 1.

Scale Numerical Reciprocal

Rating
Extremely Preferred 9 1/9
Very strong to extremely 8 1/8
Very strongly preferred 7 1/7
Strongly to very strongly 6 1/6
Strongly preferred 5 1/5
Moderately to strongly 4 ¼
Moderately preferred 3 1/3
Equally to moderately 2 ½
Equally preferred 1 1
Table 1 – Saaty’s Scale of Relative Importance (SAATY, 2005)

It is common to always use odd numbers from the table to make sure there is a
reasonable distinction among the measurement points. The use of even numbers should
only be adopted if there is a need for negotiation between the evaluators. When a natural
consensus cannot be reached, it raises the need to determine a middle point as the
negotiated solution (compromise) (SAATY, 1980).

The comparison matrix is constructed from the Saaty scale (Table 2).

Criteria 1 Criteria 2
Criteria 1 1 Numerical Rating
Criteria 2 1/Numerical Rating (Reciprocal) 1
Table 2- Comparison Matrix (presuming that Criterion 1 dominates over Criterion 2)

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AN EXAMPLE OF THE APPLICATION OF AHP IN A PORTFOLIO
In order to serve as an example of the AHP calculations for a prioritization of projects,
the development of a fictitious decision model for the ACME Organization has been
chosen. As the example is further developed, the concepts, terms and approaches to
AHP will be discussed and analyzed.

The first step to build the AHP model lies in the determination of the criteria that will be
used. As already mentioned, each organization develops and structures its own set of
criteria, which in turn must be aligned to the strategic objectives of the organization.

For our fictitious ACME organization, we will assume that a study has been made
together with the Finance, Strategy Planning and Project Management areas on the
criteria to be used. The following set of 12 (twelve) criteria has been accepted and
grouped into 4 (four) categories, as shown on the hierarchy depicted in Figure 2.

Figure 2 – Hierarchy of Criteria for the fictitious ACME organization

DETERMINING THE COMPARISON MATRIX, THE

PRIORITY VECTOR (EIGEN) AND THE INCONSISTENCY
After the hierarchy has been established, the criteria must be evaluated in pairs so as to
determine the relative importance between them and their relative weight to the global
goal.

The evaluation begins by determining the relative weight of the initial criteria groups
(Figure 3). Table 3 shows the relative weight data between the criteria that have been
determined by ACME’s decision makers.

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 Figure 3 – ACME’s initial group of criteria/objectives

Stakeholders C Financial Strategic Other Criteria

Stakeholders C 1 1/5 1/9 1
Financial 5 1 1 5
Strategic 9 1 1 5
Other Criteria 1 1/5 1/5 1
Table 3 – Comparison Matrix for ACME’s Group of Criteria

In order to interpret and give relative weights to each criterion, it is necessary to

normalize the previous comparison matrix. The normalization is made by dividing each
table value by the total the total column value (Table 4).

Stakeholders C Financial Strategic Other Criteria

Stakeholders C 1 1/5 1/9 1
Financial 5 1 1 5
Strategic 9 1 1 5
Other Criteria 1 1/5 1/5 1
Total (Sum) 16.00 2.40 2.31 12.00
Results
Stakeholders C 1/16 = 0.063 0.083 0.048 0.083
Financial 5/16 = 0,313 0.417 0.433 0.417
Strategic 9/16 = 0.563 0.417 0.433 0.417
Other Criteria 1/16 = 0.063 0.083 0.087 0.083
Table 4 – Comparison Matrix for ACME’s Group of Criteria after Normalization

The contribution of each criterion to the organizational goal is determined by calculations

made using the priority vector (or Eigenvector). The Eigenvector shows the relative
weights between each criterion it is obtained in an approximate manner by calculating
the arithmetic average of all criteria, as depicted on Exhibit 10. We can observe that the
sum of all values from the vector is always equal to one (1). The exact calculation of the
Eigenvector is determined only on specific cases. This approximation is applied most of
the times in order to simplify the calculation process, since the difference between the
exact value and the approximate value is less than 10% (KOSTLAN, 1991).

Eigenvector (Calculation) Eigenvector

Stakeholders C [0.063+0.083+0.048+0.083]/4 =0.0693 0.0693 (6,93%)
Financial [0.313+0.417+0.433+0.417]/4 =0.3946 0.3946 (39,46%)
Strategic [0.563+0.417+0.433+0.417]/4 =0.4571 0.4571 (45,71%)
Other Criteria [0.063+0.083+0.087+0.083]/4 = 0.0789 0.0789 (7,89%)
Table 5 – Eigenvector Calculation (ACME)

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For comparison purposes, a mathematical software application has been used to
calculate the exact value for the Eigenvector through the use of potential matrices. The
results are shown on Table 6.

Aproximate Exact Eigen Difference

Eigen Vector Vector (%)
Stakeholders C 0.0693 (6,93%) 0.0684 (6,84%) 0,0009 (1,32%)
Financial 0.3946 (39,46%) 0.3927 (39,27%) 0,0019 (0,48%)
Strategic 0.4571 (45,71%) 0.4604 (46,04%) 0,0033 (0,72%)
Other Criteria 0.0789 (7,89%) 0.0785 (7,85%) 0,0004 (0,51%)
Table 6 – Comparative Results for the Calculation of the Eigenvector – Approximate and Exact

It can be observed that the approximate and exact values are very close to each other,
so the calculation of the exact vector requires a mathematical effort that can be
exempted (KOSTLAN, 1991).

The values found in the Eigenvector have a direct physical meaning in AHP. They
determine the participation or weight of that criterion relative to the total result of the
goal. For example, in our ACME organization, the strategic criteria have a weight of
46.04% (exact calculation of the Eigenvector) relative to the total goal. A positive
evaluation on this factor contributes approximately 7 (seven) times more than a positive
evaluation on the Stakeholder Commitment criterion (weight 6.84%).

The next step is to look for any data inconsistencies. The objective is to capture enough
information to determine whether the decision makers have been consistent in their
choices (TEKNOMO, 2006). For example, if the decision makers affirm that the strategic
criteria are more important than the financial criteria and that the financial criteria are
more important than the stakeholder commitment criteria, it would be inconsistent to
affirm that the stakeholder commitment criteria are more important than the strategic
criteria (if A>B and B>C it would be inconsistent to say that A<C).

The inconsistency index is based on Maximum Eigenvalue, which is calculated by

summing the product of each element in the Eigenvector (Table 5) by the respective
column total of the original comparison matrix (Table 4). Table 7 demonstrates the
1
calculation of Maximum Eigenvalue ( ) .

Eigenvector 0.0684 0.3927 0.4604 0.0785

Total (Sum) 16.00 2.40 2.31 12.00
Maximum
Eigenvalue [(0.0684 x 16.00)+(0.3927 x 2.40)+(0.4604 x 2.31) + (0.0785 x 12.00)] = 4.04
( )

1
The Eigenvector values used from this moment on will be based on the exact values, and not on the
approximate values, because the exact values have been calculated and are thus available.

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 Table 7 – Calculation of Maximum Eigenvalue

Where CI is the Consistency Index and n is the number of evaluated criteria.

For our ACME organization, the Consistency Index (CI) is

In order to verify whether the Consistency Index (CI) is adequate, Saaty (SAATY, 2005)
suggests what has been called Consistency Rate (CR), which is determined by the ratio
between the Consistency Index and the Random Consistency Index (RI). The matrix will
be considered consistent if the resulting ratio is less than 10%.

The calculation of the Consistency Index (SAATY, 2005) is given by the following formula

The RI value is fixed and is based on the number of evaluated criteria, as shown on
Table 8.

N 1 2 3 4 5 6 7 8 9 10
RI 0 0 0.58 0.9 1.12 1.24 1.32 1.41 1.45 1.49
Table 8 – Table of Random Consistency Indices (RI) (SAATY, 2005)

For our ACME organization, the Consistency Rate for the initial criteria group is

Since its value is less than 10%, the matrix can be considered to be consistent.

The priority criteria results for the first level can be seen in Figure 4.

Figure 4 – Results of the Comparison Matrix for ACME’s Criteria Group, demonstrating the contribution of each criterion
to the goal defined for the organization

By looking at Figure 4 and the Eigenvector values, it is evident that the Strategic Criteria
have a contribution of 46.04% to the goal, whereas the Stakeholder Commitment criteria
contributes with 6.84% to the goal.

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OTHER CALCULATIONS INVOLVING THE CHOSEN CRITERIA
Just like it was done with the initial criteria group for the ACME organization, it is
necessary to evaluate the criteria’s relative weights for the second level of the hierarchy
(Figure 5). This process is executed just like the step to evaluate the first level of the
hierarchy (Criteria Group) as it was shown above.

Figure 5 – Hierarchy of criteria for the fictitious ACME organization highlighting the second hierarchy level

The following tables (16 to 19) show the comparison matrices for the criteria with the
pair-wise comparisons already taken by the decision makers.

Stakeholders Commitment Criteria

Team Organizational Project Manager
Commitment Commitment Commitment
Team
1 3 1/5
Commitment
Organizational
1/3 1 1/9
Commitment
Project Manager
5 9 1
Commitment
Table 9 – Comparison Matrix – Stakeholder Commitment Criteria

Financial Criteria
Return of Net Present
Profit (US$)
Investment Value
Return of
1 1/5 1/5
Investiment
Profit
5 1 1
(US$)
Net Present
5 1 1
Value
Table 10 – Comparison Matrix – Financial Criteria

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 Strategic Criteria
Compete in
Internal
International Reputation
Processes
Markets
Compete in Intern.
1 7 3
Markets
Internal
1/7 1 1/5
Processes
Reputation 1/3 5 1

Table 11 – Comparison Matrix – Strategic Criteria

Other Criteria
Lower Risks for Internal Technical
Urgency
the Organization Knowledge
Lower Risks for the
1 5 1/3
Organization
Urgency 1/5 1 1/7
Internal Technical
3 7 1
Knowledge
Table 12 – Comparison Matrix – Other Criteria

The following charts (Figure 20 to 23) demonstrate the priority results for the sub-criteria
2
for each one of the criteria groups and their respective inconsistency indices. We can
observe that none of the criterion demonstrates any inconsistency above tolerable limits.

Figure 6 – Priority results for the Stakeholder Commitment Criteria

Figure 7 – Priority results for the Financial Criteria

Figure 8 – Priority results for the Strategic Criteria

Figure 9 – Priority results for the Other Criteria

2
The data have been simulated and calculated using ExpertChoice 11.5 for Windows, available at
www.expertchoice.com.

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The global priority for each criterion is determined by the result of the multiplication of
each priority on the first level by its respective priority on the second level. The results
are shown on the hierarchy depicted on Figure 10. We can also see that the sum of the
weights of all twelve (12) factors is equal to 1.

Figure 10 – Hierarcy of criteria for the fictitious ACME organization with global priorities for each criterion

EVALUATING CANDIDATE PROJECTS FOR THE PORTFOLIO

After having structured the tree and established the priority criteria, it is now possible to
determine how each one of the candidate projects fits the chosen criteria.

In the same manner that the criteria prioritization has been made, the candidate projects
are pair-wisely compared considering every established criteria.

For our ACME organization, six (6) different projects have been identified and must then
be prioritized. The fictitious projects are:

 Move to a new office facility

 New ERP system
 Opening of an office in China
 Development of a new Product aiming at the International Market
 IT infrastructure Outsourcing
 New local Marketing Campaign
In order to apply AHP, the decision makers from ACME organization have compared six
(6) projects taking into consideration every one of the twelve (12) established criteria. The
results are shown in the following twelve (12) tables.

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 Team Commitment
New ERP Chinese Intern. IT Local
Office Implem. Office Product Outsourc. Campaign
New
1 5 3 1/3 9 7
Office
ERP
1/5 1 1/5 1/7 1 1/3
Implem.
Chinese
1/3 5 1 1/3 7 3
Office
International
3 7 3 1 5 5
Product
IT
1/9 1 1/7 1/5 1 1/3
Outsourcing
New Local
1/7 3 1/3 1/5 3 1
Campaign
Table 13 – Projects Comparison Matrix for the Team Commitment Criterion

Organizational Commitment
New ERP Chinese Intern. IT Local
Office Implem. Office Product Outsourc. Campaign
New
1 3 1/9 1/5 5 3
Office
ERP
1/3 1 1/9 1/7 1 1/3
Implem.
Chinese
9 9 1 3 7 7
Office
International
5 7 1/3 1 9 7
Product
IT
1/5 1 1/7 1/9 1 1/3
Outsourcing
New Local
1/3 3 1/7 1/7 3 1
Campaign
Table 14 – Projects Comparison Matrix for the Organization Commitment Criterion

Project Manager Commitment

New ERP Chinese Intern. IT Local
Office Implem. Office Product Outsourc. Campaign
New
1 7 1/3 1/3 5 3
Office
ERP
1/7 1 1/9 1/7 3 1/3
Implem.
Chinese
3 9 1 1 7 7
Office
International
3 7 1 1 7 9
Product
IT
1/5 1/3 1/7 1/7 1 1/5
Outsourcing
New Local
1/3 3 1/7 1/9 5 1
Campaign
Table 15 – Projects Comparison Matrix for the Project Manager Commitment Criterion

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 Return on Investment
New ERP Chinese Intern. IT Local
Office Implem. Office Product Outsourc. Campaign
New
1 1/3 1/7 1/9 1/3 1/3
Office
ERP
3 1 1/9 1/9 1/3 1/3
Implem.
Chinese
7 9 1 1/3 7 5
Office
International
9 9 3 1 7 5
Product
IT
3 3 1/7 1/7 1 1/3
Outsourcing
New Local
3 3 1/5 1/5 3 1
Campaign
Table 16 – Projects Comparison Matrix for the Return On Investment Criterion

Profit (US$)
New ERP Chinese Intern. IT Local
Office Implem. Office Product Outsourc. Campaign
New
1 1 1/7 1/9 1/5 1/3
Office
ERP
1 1 1/7 1/9 1/3 1/5
Implem.
Chinese
7 7 1 1/3 7 5
Office
International
9 9 3 1 9 5
Product
IT
5 3 1/7 1/9 1 1/3
Outsourcing
New Local
3 5 1/5 1/5 3 1
Campaign
Table 17 – Projects Comparison Matrix for the Profit (US$) Criterion

Net Present Value

New ERP Chinese Intern. IT Local
Office Implem. Office Product Outsourc. Campaign
New
1 1/3 1/5 1/7 1/3 1/3
Office
ERP
3 1 1/5 1/7 1 1/3
Implem.
Chinese
5 5 1 1/3 5 3
Office
International
7 7 3 1 5 7
Product
IT
3 1 1/5 1/5 1 1/3
Outsourcing
New Local
3 3 1/3 1/7 3 1
Campaign
Table 18 – Projects Comparison Matrix for the Net Present Value Criterion

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 Improves Ability to Compete in International Markets
New ERP Chinese Intern. IT Local
Office Implem. Office Product Outsourc. Campaign
New
1 3 1/9 1/7 5 5
Office
ERP
1/3 1 1/9 1/9 1/3 3
Implem.
Chinese
9 9 1 1 9 9
Office
International
7 9 1 1 9 9
Product
IT
1/5 3 1/9 1/9 1 3
Outsourcing
New Local
1/5 1/3 1/9 1/9 1/3 1
Campaign
Table 19 – Projects Comparison Matrix for the Ability to Compete in International Markets Criterion

Improves Internal Processes

New ERP Chinese Intern. IT Local
Office Implem. Office Product Outsourc. Campaign
New
1 1/5 3 5 1 7
Office
ERP
5 1 7 7 1 7
Implem.
Chinese
1/3 1/7 1 1 1/7 1
Office
International
1/5 1/7 1 1 1/7 1/3
Product
IT
1 1 7 7 1 7
Outsourcing
New Local
1/7 1/7 1 3 1/7 1
Campaign
Table 20 – Projects Comparison Matrix for the Improves Internal Processes Criterion

Improves Reputation
New ERP Chinese Intern. IT Local
Office Implem. Office Product Outsourc. Campaign
New
1 1/3 1/7 1/5 3 1/7
Office
ERP
3 1 1/9 1/5 5 1/7
Implem.
Chinese
7 9 1 3 7 1
Office
International
5 5 1/3 1 7 1/3
Product
IT
1/3 1/5 1/7 1/7 1 1/9
Outsourcing
New Local
7 7 1 3 9 1
Campaign
Table 21 – Projects Comparison Matrix for the Improves Reputation Criterion

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 Lower Risks (Threats) for the Organization
New ERP Chinese Intern. IT Local
Office Implem. Office Product Outsourc. Campaign
New
1 5 7 3 5 1
Office
ERP
1/5 1 5 3 3 1/7
Implem.
Chinese
1/7 1/5 1 1/3 1/3 1/9
Office
International
1/3 1/3 3 1 5 1/7
Product
IT
1/5 1/3 3 1/5 1 1/9
Outsourcing
New Local
1 7 9 7 9 1
Campaign
Table 22 – Projects Comparison Matrix for the Lower Risks (Threats) for the Organization Criterion

Urgency
New ERP Chinese Intern. IT Local
Office Implem. Office Product Outsourc. Campaign
New
1 1/3 1/5 1/7 3 1
Office
ERP
3 1 1/7 1/9 3 3
Implem.
Chinese
5 7 1 1/3 5 7
Office
International
7 9 3 1 7 7
Product
IT
1/3 1/3 1/5 1/7 1 1/3
Outsourcing
New Local
1 1/3 1/7 1/7 3 1
Campaign
Table 23 – Projects Comparison Matrix for the Urgency Criterion

Internal Technical Knowledge

New ERP Chinese Intern. IT Local
Office Implem. Office Product Outsourc. Campaign
New
1 9 9 9 9 3
Office
ERP
1/9 1 1/3 1/3 1/5 1/9
Implem.
Chinese
1/9 3 1 3 1 1/9
Office
International
1/9 3 1/3 1 1/3 1/9
Product
IT
1/9 5 1 3 1 1/9
Outsourcing
New Local
1/3 9 9 9 9 1
Campaign
Table 24 – Projects Comparison Matrix for the Internal Technical Knowledge Criterion

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After calculating all priorities and inconsistency indices, it is possible to determine the
relative weight of each project for each criterion, as we can see in the following twelve
(12) charts (one chart for each criterion)

Figure 11 – Priority results for the projects according to the Team Commitment Criterion

Figure 12 – Priority results for the projects according to the Organization Commitment Criterion

Figure 13 – Priority results for the projects according to the Project Manager Commitment Criterion

Figure 14 – Priority results for the projects according to the Return On Investment Criterion

Figure 15 – Priority results for the projects according to the Profit (US$) Criterion

Figure 16 – Priority results for the projects according to the Net Present Value Criterion

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 Figure 17 – Priority results for the projects according to the Ability to compete in International Markets Criterion

Figure 18 – Priority results for the projects according to the Improves Internal Processes Criterion

Figure 19 –Priority results for the projects according to the Improves Reputation Criterion

Figure 20 – Priority results for the projects according to the Lower Organizational Risks (Threats) Criterion

Figure 21 – Priority results for the projects according to the Urgency Criterion

Figure 22 – Priority results for the projects according to the Internal Technical Knowledge Criterion

The crossing product of all project evaluations using all criteria determines the final
priority for each project in relation to the desired goal.

The mechanism for calculating the final priority is to sum the products of the
multiplication of each criterion’s priority weight by its alternative weight.

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In order to exemplify this process, Table 25 shows the calculation process for the
alternative “Move to a New Office”

Priority Alternative
Criteria Product
Weight Weight
Team Commitment 0,0122 0,2968 0,0036
Organizational Commitment 0,0048 0,0993 0,0005
Project Manager Commitment 0,0514 0,1586 0,0082
Return on Investment (ROI) 0,0357 0,0296 0,0011
Profit (US$) 0,1785 0,0315 0,0056
Net Present Value 0,1785 0,0366 0,0065
Improves Ability to Compete in International Markets 0,2988 0,1033 0,0309
Improves Internal Processes 0,0331 0,1903 0,0063
Improves Reputation 0,1284 0,0421 0,0054
Lower Risks (Threats) for the Organization 0,0219 0,2994 0,0066
Urgency 0,0056 0,0553 0,0003
Internal Technical Knowledge 0,0510 0,4796 0,0243
Results 0,0992
Table 25 – Final priority evaluation of the Project Move to a New Office according to the established and weighted criteria
for the ACME Organization

The same process should be repeated for the other five (5) projects. The final results for
all projects are shown in Figure 23.

Figure 23 – Final priority results for the for ACME’s portfolio of projects

Figure 23 shows that the project with the highest level of adherence to the defined goal
is “Development of a New Product for the International Market”. It contributes with
34.39% (0.3439). In order to better illustrate the importance of the difference between
the weights and priorities of each project, this project contributes with about three (3)
times more to the goal than the New Local Marketing Campaign project, which
contributes with only 13.1% (0.131) to the global goal.

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CONCLUSION
AHP has been attracting the interest of many researchers mainly due to the
mathematical features of the method and the fact that data entry is fairly simple to be
produced (TRIANTAPHYLLOU & MANN, 1995). Its simplicity is characterized by the pair-
wise comparison of the alternatives according to specific criteria (VARGAS, 1990).

Its application to select projects for the portfolio allows the decision makers to have a
specific and mathematical decision support tool. This tool not only supports and qualifies
the decisions, but also enables the decision makers to justify their choices, as well as
simulate possible results.

The use of AHP also presumes the utilization of a software application tailored
specifically to perform the mathematical calculations. In this paper, the intention has
been to show the main calculations performed during the analysis, enabling project
managers to have an adequate understanding of the technique, as well as the
complexity involved to make the calculations by hand (in case software applications
can’t be used).

Another important aspect is the quality of the evaluations made by the decision makers
(COYLE, 2004). For a decision to be the most adequate possible, it must be consistent
and coherent with organizational results. We saw that the coherence of the results can
be calculated by the inconsistency index. However, the inconsistency index allows only
the evaluation of the consistency and regularity of the opinions from the decision
makers, and not whether these opinions are the most adequate for a specific
organizational context.

Finally, it is important to emphasize that decision making presumes a broader and more
complex understanding of the context than the use of any specific technique. It
predicates that a decision about a portfolio is a fruit of negotiation, human aspects and
strategic analysis, where methods like AHP favor and guide the execution of the work,
but they cannot and must not be used as a universal criteria.

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TRIANTAPHYLLOU, E. & MANN S. H. (1995). Using The Analytic Hierarchy Process For
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