The Logic of Priorities

Our minds have a limited capacity to assimilate and retain large amounts of information even for short periods of time. Because of such limitations, and because in many situations data are not available, we must base our decisions on the information at hand and on the experiences we have accumulated over the years. In today ‘’s complex world, no amount of information seems adequate to make objective decisions on multifaceted and controversial problems. No wonder individuals and even public and private enterprises often make decisions based on subjective knowledge rather than on a thorough and complete logical resolution of the issues—if that ever is a possibility.

A fundamental problem of decision theory is how to derive weights for a set of activities according to importance. Importance is usually judged by several criteria that may be shared by some or all of the activities. This weighting of activities with respect to importance is a process of multiple-criterion decision making, which we study here through a theory of measurement in a hierarchical structure.

We begin our applications with the Sudan Transport Study, in which a plan was developed to improve the Sudanese economy. (This study won an award from the Institute of Management Studies for being one of the best applied studies in 1977.)

It is widely held that the economic situation of less developed countries (LDCs) can be greatly improved by conscious and judicious application of science and technology to the solution of their many problems. This belief is well supported by evidence attributing the rapid economic growth achieved by industrially advanced countries to the technology factor (Solow, 1957; Denison, 1974). Early economic theorists noted that the level of savings and investment in the LDCs was low. They recommended transfusion of capital to spur investment and capital formation; but beginning with the late fifties the emphasis shifted to transfusion of technology rather than capital. However, the collective experience of the LDCs with imported technology over the past three decades has been far from encouraging, as is apparent from the growing discontent voiced by the “Group of 77.”

Planning for research and development is basically a process of prescribing commitments to particular technologies in the future by making resource allocations now. It intrinsically involves tradeoffs among “goods” or “virtues.” It also confronts risks induced by a variety of uncertainties. R&D planning is especially problematic because the time horizon is longer than in most corporate planning of the public and private sectors, and the uncertainties are consequently that much greater.

Planning is an ongoing decision process whose purposes are: (1) to specify the ideals, objectives, and goals an organization desires to obtain in the future; (2) to define the programs that must be undertaken to achieve these ends; and (3) to procure the resources, create the organization, and control the results of planning implementation.

The domestic strife in South Africa between ruling whites and subordinated blacks threatens to become a major conflict of violent dimensions in the African continent. This strife is primarily a consequence of racial policies promulgated by the white apartheid regime. Donald Woods (1978) describes apartheid in South Africa as “government of the blacks, by the whites, for the whites.” Since the early 1970s, a new black movement has emerged to challenge the white regime, “taking as its leitmotif the raising of black consciousness” (Ferguson and Cotter, 1978). This has led to increasingly violent uprisings in black communities mainly by university students and urban blacks, inviting white police intervention and serious suppression of black organizations.

The international oil market is the most complex trade market in the world. The actions taken by one major actor affect the whole world community. The market’s influence not only is felt in the economic affairs of nations but also reaches out to the technical, social, environmental, and political domains, all continually interacting and affecting each other. Some actors who organize and operate this large market belong to the poorest nations; others are multinational corporations; and still others are superpowers whose potential confrontations in the world today include the security of oil sources and oil supplies. The ideologies and politics of the actors are diverse. With such a complex system one cannot possibly make accurate judgments or prescriptions without understanding the interrelationships among the actors and the factors that influence the system. Thus it seems crucial to do long-range planning by scrutinizing the capabilities and behavior of the actors, defining their objectives, investigating their possible future strategies, examining the impact of these strategies on each actor, searching for strategies that could lead to a desired future, and exploring ways that would make such a future attainable. Through this planning we can control the future; we can direct it toward a desired goal and prevent the emergence of disastrous outcomes. Planning would also provide us with the time needed for change and adaptation to a new environment as we proceed toward our desired goal.

The United States spends 8.6 percent of its total gross national product (the highest percentage in the world) on health care systems (Sidel and Sidel, 1977); yet it ranks nineteenth in the world in providing care necessary to decrease mortality and morbidity rates. Conversely there are countries such as Great Britain, whose expenditures are closer to 5 percent, that rank higher in the provision of quality medical care (Silver, 1976). Considerable medical expenditure in the United States goes into duplication of equipment and personnel in a single community and even within a single hospital.

A short time ago it was unthinkable and deemed an academic exercise to speak of rationing. People thought that there could be no crippling energy crisis because our energy czars and planners would presumably take our needs into their projections. Today the situation looks very different. Witness the lack of natural gas in the cold winter of 1976–77, which caused the shutdown of some schools and industries, and the coal strike of 1977–78. Lack of coal caused a shortage of electric power in the Midwest, and electric power companies planned to ask for an end to all outdoor lighting and evening sports events plus a cutback of retail business schedules. The companies were also prepared to slice industrial electric usage to between 50 percent and “maintenance level,” forcing the shutdown of many factories.

Today oil is the world’s major energy resource. It accounts for about 54 percent of the world’s total energy consumption. Because of conservation and the development of alternative resources in industrialized countries, the share of oil in the world’s total energy consumption is expected to decline. But the total volume of oil consumption will still rise, and it will remain the largest single source of energy for the next two decades.

Our purpose in this chapter is to explore, through an example, the roles of technical competence and of behavior in predicting the outcome of a competitive situation. Of course, factors arising from uncontrollable natural events (such as bad weather) and from human intervention (such as referee error) could have a marked effect on the outcome. In most competition, however, an effort is usually made to minimize the effect of natural causes to avoid unfair outside intervention.

The objective of the AHP, as established in chapter 2, is to provide priorities (weights) reflecting the importance of activities with respect to multiple criteria ordered in a hierarchical structure. These priorities can be used to allocate a resource such as money among the activities at the lower levels of the hierarchy (see chapter 5). As such, the approach is ideally suited to the allocation of a firm’s resources among the activities in its (1) target production portfolio, (2) corporate portfolio—the activities are the business segments, and (3) investment portfolio.

In this final chapter we summarize the steps of the Analytic Hierarchy Process and discuss its extensions to other areas of prioritization and problem solving. We illustrate an extension dealing with structures more complex than hierarchies: systems with feedback.