multi-criteria-analysis

What Is A Multi-criteria Analysis? Multi-criteria Analysis In A Nutshell

The multi-criteria analysis provides a systematic approach for ranking adaptation options against multiple decision criteria. These criteria are weighted to reflect their importance relative to other criteria. A multi-criteria analysis (MCA) is a decision-making framework suited to solving problems with many alternative courses of action.

Understanding a multi-criteria analysis

Unlike a cost-benefit analysis, a multi-criteria analysis allows businesses to consider both quantitative and qualitative data. The multi-criteria analysis considers project feasibility, acceptability, and equity which are sometimes difficult to measure. It can also be used to guide qualitative decision making with urgency, no-regret, or co-benefit characteristics 

An MCA can be used to analyze alternative adaptation strategies for projects and investment decisions. Since it considers both quantitative and qualitative information, it is especially useful for broad or complex decisions where multiple factors must be analyzed. At its core, the multi-criteria analysis works by:

  • Dividing a decision or problem into smaller, more understandable parts.
  • Analyzing each part, and then
  • Integrating the parts to create a meaningful solution or decision.

The six components of a multi-criteria analysis

The multi-criteria analysis is a six-step process encouraging teams to talk about the problem at hand and consider the values each individual deems important. 

Alternative courses of action and how they interact with one another should be discussed as the team iteratively works to discover the best solution.

With that said, let’s take a look at the six components below:

1 – Identify objectives 

Good decisions need clear objectives. That is, they should be specific, measurable, agreed upon, realistic, and time-sensitive. The relevant stakeholders must also be identified and a range of decision alternatives devised. 

For example, a local council may have the goal to build an Olympic-sized swimming pool in a town of 50,000 people. In this case, the decision alternatives are five separate sites the council has identified as suitable locations.

2 – Identify stakeholder interests

Identifying stakeholder interests helps determine the set of criteria worth analyzing and evaluating for each decision. These interests must be measurable and contribute to achieving the objective. 

The local council building a new swimming pool may consider locational criteria such as:

  • Proximity to other facilities.
  • Environmental impact.
  • Traffic impact.
  • Ease of access.
  • Proximity to existing swimming pools.

3 – Rate the alternatives

In the third step, the business must rate each course of action in terms of how it satisfies each criterion. This step requires expert consultation.

Returning to the above example, the local council can assess the potential locations for a new swimming pool in two ways:

  1. Relative scale – where each alternative is rated relative to the others. The location that best satisfies a criterium is given a score of 4, while the second-best is given a score of 3, and so on. 
  2. Ordinal scale – where each alternative is rated to how well it satisfies a particular interest. Five-point scales are commonly used here, with a score of 5 denoting excellent satisfaction and a score of 1 denoting poor satisfaction.

When assessing the proximity to existing pools criterium, decision-makers give higher scores to locations that are further away. When assessing environmental impact, higher scores are given to locations where there are fewer trees requiring removal.

4 – Weight stakeholder interests

Each stakeholder then assigns their own weights to the various criteria based on personal preference. To facilitate discussion among the group, individual weightings are not blended or averaged with the weightings of others.

Weighting is important because it clarifies the relative importance of individual criteria in the broader decision. To keep things simple, the business can allocate 100 points to each person and instruct them to distribute the points among the various criteria. The more important an individual deems a certain criterion, the more points are allocated.

5 – Score the alternatives

Each individual then multiplies their weights by the corresponding rating values for each criterion. Summing the scores for each criterion then determines the alternative course of action they deem most preferable.

6 – Discussion 

Lastly, stakeholders compare their scores to see if a clear and preferred course of action has emerged. If this is the case, the team can move forward with a decision.

If not, there are a few options:

  • Where one or two courses of action are rated poorly by all individuals, they can be removed from the list of choices to make a decision simpler.
  • Alternatives with close scores are worthy of deeper discussion, with stakeholders encouraged to revisit or revise their weightings to reach an agreement.
  • The criteria ratings themselves can be better expressed as a range of numbers instead of a single number. For example, a swimming pool with high road traffic may be a given a score of between 7 and 9 instead of 8.
  • If all else fails, the MCA favors discussion, experimentation, and collaboration until consensus is reached.

Key takeaways:

  • A multi-criteria analysis is a decision-making framework suited to solving problems with many alternative courses of action.
  • A multi-criteria analysis considers both quantitative and qualitative information. As a result, it can be used to complement or replace a cost-benefit analysis.
  • A multi-criteria analysis can be performed in six steps: identify objectives, identify stakeholder interests, rate the alternatives, weight stakeholder interests, score the alternatives, and discussion. The MCA approach favors discussion and collaboration until a consensus is reached.

Other Analysis Frameworks

Failure Mode And Effects Analysis

failure-mode-and-effects-analysis
A failure mode and effects analysis (FMEA) is a structured approach to identifying design failures in a product or process. Developed in the 1950s, the failure mode and effects analysis is one the earliest methodologies of its kind. It enables organizations to anticipate a range of potential failures during the design stage.

Agile Business Analysis

agile-business-analysis
Agile Business Analysis (AgileBA) is certification in the form of guidance and training for business analysts seeking to work in agile environments. To support this shift, AgileBA also helps the business analyst relate Agile projects to a wider organizational mission or strategy. To ensure that analysts have the necessary skills and expertise, AgileBA certification was developed.

Business Valuation

valuation
Business valuations involve a formal analysis of the key operational aspects of a business. A business valuation is an analysis used to determine the economic value of a business or company unit. It’s important to note that valuations are one part science and one part art. Analysts use professional judgment to consider the financial performance of a business with respect to local, national, or global economic conditions. They will also consider the total value of assets and liabilities, in addition to patented or proprietary technology.

Paired Comparison Analysis

paired-comparison-analysis
A paired comparison analysis is used to rate or rank options where evaluation criteria are subjective by nature. The analysis is particularly useful when there is a lack of clear priorities or objective data to base decisions on. A paired comparison analysis evaluates a range of options by comparing them against each other.

Monte Carlo Analysis

monte-carlo-analysis
The Monte Carlo analysis is a quantitative risk management technique. The Monte Carlo analysis was developed by nuclear scientist Stanislaw Ulam in 1940 as work progressed on the atom bomb. The analysis first considers the impact of certain risks on project management such as time or budgetary constraints. Then, a computerized mathematical output gives businesses a range of possible outcomes and their probability of occurrence.

Cost-Benefit Analysis

cost-benefit-analysis
A cost-benefit analysis is a process a business can use to analyze decisions according to the costs associated with making that decision. For a cost analysis to be effective it’s important to articulate the project in the simplest terms possible, identify the costs, determine the benefits of project implementation, assess the alternatives.

Financial Modeling

financial-modeling
Financial modeling involves the analysis of accounting, finance, and business data to predict future financial performance. Financial modeling is often used in valuation, which consists of estimating the value in dollar terms of a company based on several parameters. Some of the most common financial models comprise discounted cash flows, the M&A model, and the CCA model.

CATWOE Analysis

catwoe-analysis
The CATWOE analysis is a problem-solving strategy that asks businesses to look at an issue from six different perspectives. The CATWOE analysis is an in-depth and holistic approach to problem-solving because it enables businesses to consider all perspectives. This often forces management out of habitual ways of thinking that would otherwise hinder growth and profitability. Most importantly, the CATWOE analysis allows businesses to combine multiple perspectives into a single, unifying solution.

VTDF Framework

competitor-analysis
It’s possible to identify the key players that overlap with a company’s business model with a competitor analysis. This overlapping can be analyzed in terms of key customers, technologies, distribution, and financial models. When all those elements are analyzed, it is possible to map all the facets of competition for a tech business model to understand better where a business stands in the marketplace and its possible future developments.

Pareto Analysis

pareto-principle-pareto-analysis
The Pareto Analysis is a statistical analysis used in business decision making that identifies a certain number of input factors that have the greatest impact on income. It is based on the similarly named Pareto Principle, which states that 80% of the effect of something can be attributed to just 20% of the drivers.

Comparable Analysis

comparable-company-analysis
A comparable company analysis is a process that enables the identification of similar organizations to be used as a comparison to understand the business and financial performance of the target company. To find comparables you can look at two key profiles: the business and financial profile. From the comparable company analysis it is possible to understand the competitive landscape of the target organization.

SWOT Analysis

swot-analysis
A SWOT Analysis is a framework used for evaluating the business’s Strengths, Weaknesses, Opportunities, and Threats. It can aid in identifying the problematic areas of your business so that you can maximize your opportunities. It will also alert you to the challenges your organization might face in the future.

PESTEL Analysis

pestel-analysis
The PESTEL analysis is a framework that can help marketers assess whether macro-economic factors are affecting an organization. This is a critical step that helps organizations identify potential threats and weaknesses that can be used in other frameworks such as SWOT or to gain a broader and better understanding of the overall marketing environment.

Business Analysis

business-analysis
Business analysis is a research discipline that helps driving change within an organization by identifying the key elements and processes that drive value. Business analysis can also be used in Identifying new business opportunities or how to take advantage of existing business opportunities to grow your business in the marketplace.

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Published by

Gennaro Cuofano

Gennaro is the creator of FourWeekMBA which reached over a million business students, executives, and aspiring entrepreneurs in 2020 alone | He is also Head of Business Development for a high-tech startup, which he helped grow at double-digit rate | Gennaro earned an International MBA with emphasis on Corporate Finance and Business Strategy | Visit The FourWeekMBA BizSchool | Or Get The FourWeekMBA Flagship Book "100+ Business Models"