What is Multiple Criteria Decision-Making?

Some decisions are very simple – for example: Shall I have a cup of tea, or a coffee? These are the decisions that don’t really have any long-term impact, and only affect the one making the decision. But in real life, simple decisions are few and far between. Even the tea-or-coffee decision can have implications – especially if you’re not the one making the drinks. That’s certainly the case in my house.

In business, very few of our serious decisions are truly simple. Almost by definition, if it’s a serious decision, it will probably have implications beyond the immediate effect, and it will almost certainly affect more than just us. Most business decisions will affect a number of different stakeholders – from customers through to suppliers, staff and investors. And each of those will have their own set of criteria for selecting amongst alternatives.

The preferred option for investors may well be very different from what the staff would select. And suppliers would probably go for something different again. So how can we pick the right choice, taking into account the needs and wants of all the groups? And which group should be given the most importance?

Even if we ignore all the rest, and just select based on our own criteria, the chances are that even those will have clashes – is turnover more important than profit? Is innovation more important than market share? Is colour more important than quality even? How will we pick the choice that best matches all of the differing criteria?

So what is needed is a methodology that can measure each option against a number of criteria, and come up with a measure so that each option that can be simply compared and rated. It also needs to take into account the relative importance – to our business – of all of the criteria, whether ours or stakeholders’.

A common methodology is Multiple Criteria Decision Making, or MCDM. A list of criteria is developed, ideally by canvassing all the stakeholders, but it can equally be created by management. Each criterion is then weighted, according to how important it is in the overall picture, relative to all the rest. Then each option is scored against each of the criteria, according to how well it satisfies it. Finally, the scores are multiplied by the weightings and the results for each option are added up, to give a rating for that option. The table below should make the process clearer.

Criteria

Time

Effort

Know-

ledge

Unit Cost

Speed

Fit?

Refer-

rals

Weights

8

10

6

3

10

10

4

Rating

Option1

8

7

8

8

9

7

10

406

8×8 = 64 + 7×10 = 70 + 8 x 6 = 48 + 8×3 = 24 + 9×10= 90 + 7×10= 70 + 10×4=40

=406

Option2

7

5

9

3

9

7

8

361

Option3

9

6

6

6

6

8

7

354

The advantage of MCDM is that it gives a balanced view of how suitable any option is, and helps to take emotion out of the equation. It also stops any one factor from overshadowing others. One of its disadvantages is that it is possible for a critical criterion to be obscured in the overall score. Other problems include that a simple multiplication of the score times the weighting may be too simple a calculation, and that putting all of the criteria together fails to differentiate between logical, objective measurements and emotional, subjective judgements.

Overall, though MCDM may be a bit of a blunt instrument for truly complex decisions, it is much better than making serious decisions on gut feel alone.