THE ANALYTICAL HIERARCHY PROCESS (AHP)

Note

The purpose of this overview of the Analytical Hierarchy Process is to define the basis of the WinnerSelect Program. The AHP will only be summarized and we will not attempt to explain its mathematical rules and models in this overview. For those of you who would like to study such detail there is plenty of reference works on the subject.

We have computerized most of the activities listed below and made it specific for the betting industry. Please don’t let the process described below scare you, the WinnerSelect program will do all calculations for you.

Introduction

It is acknowledged that the success or failure that a person experiences in life depend on the decisions that he or she makes. Single decisions can make or break a career and can be the difference between the success or failure of an organization. Because of this reality, business schools all over the world teach the subject Decision Theory. This is an analytical and systematic approach to studying decision-making.

These techniques are applied daily all over the world where information is processed in order to calculate the probability of an occurrence. Examples would typically be:

• What would the outcomes be if we situate our business at address A versus address B?
• Should we build a large or a small warehouse? What would the impact of this be in an unfavorable versus a favorable market?
• What are the chances of a flood in a specific area given a certain set of weather patterns?
• Etc.

There are a number of mathematical models useful in helping managers make the best possible commercial decisions and the selection of which model to apply depends on how much knowledge or information they have about a situation. This is referred to as the decision-making environment in the textbooks. It would be obvious that the application of such models have been made easier and more accurate with the help of computer technology and a greater number of alternatives and factors can now be evaluated.

Multi-Factor Decision Making

Many decision-making problems involve a number of factors. For example, if you are planning to buy a new car, factors of importance to you may include fuel economy, engine power, off-road capability, new or used, model, spares availability, service intervals, warranty and cost. (In horse racing the important factors influencing the selection of a winner may be the jockey, the trainer, the horse’s previous performance etc.)

Many people subjectively and intuitively consider the various factors when making a selection but when a large number of factors or variables are present, a quantitative approach is recommended. All the important factors are given appropriate weights and each alternative is evaluated in terms of these factors.

Factor Weights Example:

Factor Weight (Importance) Fuel economy .4 Engine size .6 Service intervals .2

In many cases however, (and definitely in the sport of horse racing) we may not be able to quantify our preferences for various factors (horse performance, jockey performance, trainer etc.) and alternatives (different horse’s, trainers, jockeys competing).

When managers have difficulty in accurately determining various factor weights and evaluations they apply the Analytical Hierarchy Process.(AHP)

The Analytical Hierarchy Process

Is a process that compares all alternatives (horses, jockeys, etc.) with each other by pairwise comparisons and then computes the weighting factors and evaluations.

AHP was developed by Professor Thomas L. Saaty and published in his book, The Analytical Hierarchy Process.

To illustrate the model and the reference to a hierarchy process, we will use our earlier example:

Applied to horse racing, a simplified example of the hierarchy would be:

A decision hierarchy can have any number of levels and any number of alternatives to select from. The key to the AHP however is the pair-wise comparison that must be performed. The decision-maker needs to compare all alternatives (two at a time) using a scale that ranges from equally preferred to extremely preferred. The scale is as follows:

1. Equally Preferred
2. Equally to Moderately Preferred
3. Moderately Preferred
4. Moderately to strongly preferred
5. Strongly Preferred
6. Strongly to Very Strongly Preferred
7. Very strongly Preferred
8. Very to Extremely Strongly Preferred
9. Extremely preferred

For users of the Winner Select program this measures the extent to which e.g. horse number 1 is preferred above no. 2, then above no. 3, then above no. 4 etc. After comparing number 1 in this way, horse number 2 is compared with 1, 3, 4, 5 etc. These figures are then individually multiplied by the weights attributed to factors such as horse performance, jockey performance etc.

WinnerSelect OWNERS WILL NOT HAVE TO DO THESE CALCULATIONS!

(Can you imagine a typical race day with ten races on the card? On average each race may have about 15 horses! A manual AHP would take weeks!)

The final output of the process, (and the AHP consists of eight steps) is an identification of the highest ranking alternative/selection/horse. And yes, with the WinnerSelect program, that last step is “with the press of a button.”

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