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.
It helps in complex decision-making by considering a wide range of factors, objectives, and constraints simultaneously.
2. Transparency and Accountability
MCA provides a transparent and structured framework for decision-making, making it easier to justify and communicate the chosen alternatives.
3. Trade-Off Assessment
MCA enables the assessment of trade-offs between different criteria, helping decision-makers understand the implications of their choices.
4. Informed Resource Allocation
It assists in resource allocation by prioritizing alternatives based on their alignment with organizational goals and objectives.
5. Risk Management
MCA helps in identifying and addressing risks associated with different alternatives, enhancing risk management and mitigation strategies.
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:
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.
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.
Case Studies
Selecting a New Business Location:
Identify Objectives: The objective is to find a location that maximizes foot traffic, minimizes operating costs, and aligns with the company’s branding.
Identify Stakeholder Interests: Stakeholder interests include proximity to suppliers, accessibility for customers, local tax rates, and overall market potential.
Rate the Alternatives: Potential locations are rated based on how well they meet criteria such as proximity to suppliers (rating: 4), accessibility (rating: 5), operating costs (rating: 3), and market potential (rating: 4).
Weight Stakeholder Interests: Stakeholders assign weights to criteria based on importance, such as accessibility (weight: 40%), market potential (weight: 30%), operating costs (weight: 20%), and proximity to suppliers (weight: 10%).
Score the Alternatives: Each location’s score is calculated by multiplying ratings by weights, and the preferred location is identified.
Discussion: If stakeholders disagree on the preferred location, discussions and adjustments to criteria weights may lead to a consensus.
Supplier Selection:
Identify Objectives: The objective is to choose suppliers that provide high-quality products, have good delivery times, are cost-effective, and are environmentally responsible.
Identify Stakeholder Interests: Stakeholder interests include product quality, delivery times, cost, and sustainability.
Rate the Alternatives: Potential suppliers are rated based on their performance in each criterion.
Weight Stakeholder Interests: Stakeholders assign weights to criteria based on their importance.
Score the Alternatives: Each supplier’s score is calculated based on criteria ratings and weights.
Discussion: Stakeholders discuss scores to make a collective decision on supplier selection.
Selecting a Cloud Service Provider:
Identify Objectives: The objective is to choose a cloud service provider that offers high uptime, scalability, data security, and cost-effectiveness.
Identify Stakeholder Interests: Stakeholder interests include uptime reliability, scalability options, data security measures, and pricing.
Rate the Alternatives: Potential cloud service providers are rated based on their performance in each criterion.
Weight Stakeholder Interests: Stakeholders assign weights to criteria based on their importance.
Score the Alternatives: Each cloud service provider’s score is calculated based on criteria ratings and weights.
Discussion: Stakeholders discuss scores to make a collective decision on the cloud service provider.
Selecting a Programming Language for a Project:
Identify Objectives: The objective is to choose a programming language that is well-suited for the project in terms of performance, developer expertise, community support, and licensing costs.
Identify Stakeholder Interests: Stakeholder interests include performance optimization, availability of skilled developers, community support for problem-solving, and licensing costs.
Rate the Alternatives: Different programming languages are rated based on criteria such as performance (rating: 4), developer expertise (rating: 5), community support (rating: 4), and licensing costs (rating: 3).
Weight Stakeholder Interests: Stakeholders assign weights to criteria based on their importance.
Score the Alternatives: Each programming language’s score is calculated based on criteria ratings and weights.
Discussion: Stakeholders discuss scores to make a collective decision on the programming language.
Product Portfolio Optimization:
Identify Objectives: The objective is to optimize the product portfolio to maximize profitability, customer satisfaction, and market share.
Identify Stakeholder Interests: Stakeholder interests include profitability, customer feedback and satisfaction, and market competitiveness.
Rate the Alternatives: Different product combinations are rated based on criteria such as profit margins, customer feedback, and market competition.
Weight Stakeholder Interests: Stakeholders assign weights to criteria based on their importance.
Score the Alternatives: Each product combination’s score is calculated based on criteria ratings and weights.
Discussion: Stakeholders discuss scores to determine the optimal product portfolio mix.
Employee Promotion Decisions:
Identify Objectives: The objective is to make promotion decisions based on performance, leadership skills, and potential.
Identify Stakeholder Interests: Stakeholder interests include individual performance, leadership potential, and alignment with company values.
Rate the Alternatives: Employees are rated based on criteria such as performance appraisal scores, leadership assessments, and cultural fit.
Weight Stakeholder Interests: Stakeholders assign weights to criteria based on their importance.
Score the Alternatives: Each employee’s score is calculated based on criteria ratings and weights.
Discussion: Stakeholders discuss scores to make informed promotion decisions.
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.
Key Highlights
Definition: MCA is a systematic decision-making framework used to rank various adaptation options based on multiple decision criteria. It allows for the evaluation of different courses of action considering both quantitative and qualitative data.
Advantages over Cost-Benefit Analysis: Unlike cost-benefit analysis, MCA considers both quantitative and qualitative factors, making it suitable for complex decisions involving many alternative solutions.
Project Feasibility and Acceptability: MCA considers project feasibility, acceptability, and equity, factors that are often challenging to quantify. It guides qualitative decision-making based on urgency, co-benefits, and no-regret characteristics.
Application to Adaptation Strategies: MCA is used to analyze alternative adaptation strategies for projects and investments. It’s valuable for complex decisions involving multiple factors.
Six Components of MCA:
Identify Objectives: Clear and specific objectives are essential for decision-making. Decision alternatives and relevant stakeholders are identified.
Identify Stakeholder Interests: Stakeholder interests are measurable criteria contributing to objectives. They include aspects like location, environmental impact, traffic, etc.
Rate the Alternatives: Alternatives are rated based on how well they satisfy each criterion. Ratings can be done using relative or ordinal scales.
Weight Stakeholder Interests: Stakeholders assign weights to criteria based on personal preferences, clarifying the relative importance of each criterion.
Score the Alternatives: Each stakeholder multiplies their weights by corresponding ratings for each criterion to determine the preferable alternative.
Discussion: Stakeholders compare scores to identify a preferred course of action. If consensus is not reached, alternatives can be removed, close-scored options discussed further, or criteria ratings refined.
Decision Framework: MCA divides complex decisions into manageable parts, analyzes each part, and integrates them to arrive at a meaningful solution or decision.
Usage of MCA: MCA is useful for decisions involving multiple stakeholders and diverse criteria, where different perspectives are considered, and a comprehensive evaluation is required.
Multi-Criteria Analysis (MCA)
Description
Analysis
Implications
Applications
Examples
1. Multiple Criteria (M)
Multi-Criteria Analysis involves considering multiple criteria or factors when making decisions or evaluations.
– Identify and define the specific criteria or factors that are relevant to the decision or evaluation process. – Assess the importance or weight of each criterion.
– Provides a comprehensive and structured approach to decision-making, considering various aspects of a complex problem. – Ensures that all relevant factors are taken into account.
– Evaluating potential investment projects based on financial, environmental, and social criteria. – Selecting a supplier based on factors such as cost, quality, and delivery time.
Criteria Example: Financial return, environmental impact, social responsibility, quality, and cost.
2. Weighting (W)
Weighting involves assigning importance or priority to each criterion, reflecting its relative significance in the decision.
– Assign weights to each criterion, typically on a scale of 0 to 1, with higher weights indicating greater importance. – Ensure that the sum of weights equals 1 to maintain relative proportions.
– Reflects the relative influence of each criterion on the overall decision or evaluation. – Allows for customization based on the specific context and preferences of decision-makers.
– Giving higher weight to environmental sustainability when evaluating product options. – Assigning different weights to financial and social factors in project evaluation.
Weighting Example: Giving a weight of 0.4 to cost and 0.6 to quality when selecting a supplier.
3. Scoring (S)
Scoring involves assessing and rating each alternative or option based on the defined criteria, typically on a numerical scale.
– Evaluate each alternative or option against each criterion, using scores or ratings that reflect their performance. – Consider the full range of scores and rating scales.
– Generates quantitative data for each alternative’s performance across criteria. – Provides a basis for comparison and ranking of alternatives.
– Scoring potential real estate investments on criteria such as location, rental income, and property condition. – Rating job candidates based on qualifications, skills, and experience for hiring decisions.
Scoring Example: Scoring a car model with a fuel efficiency of 8 out of 10 and a safety rating of 9 out of 10.
4. Aggregation (A)
Aggregation combines the weighted scores for each alternative across all criteria to calculate an overall score or ranking.
– Multiply the scores for each alternative by their respective weights for each criterion. – Sum the weighted scores to calculate the overall score for each alternative.
– Provides a single, comprehensive metric for comparing and ranking alternatives. – Facilitates the identification of the best-performing alternatives based on the weighted criteria.
– Aggregating scores for potential investment projects to select the most favorable option. – Calculating an overall rating for suppliers based on their performance across criteria.
Aggregation Example: Calculating the overall score for two job candidates based on their qualifications, experience, and interview performance.
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 (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 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.
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.
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.
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.
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.
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.
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.
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.
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.
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 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.
In corporate finance, the financial structure is how corporations finance their assets (usually either through debt or equity). For the sake of reverse engineering businesses, we want to look at three critical elements to determine the model used to sustain its assets: cost structure, profitability, and cash flow generation.
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.
Value investing is an investment philosophy that looks at companies’ fundamentals, to discover those companies whose intrinsic value is higher than what the market is currently pricing, in short value investing tries to evaluate a business by starting by its fundamentals.
The Buffet Indicator is a measure of the total value of all publicly-traded stocks in a country divided by that country’s GDP. It’s a measure and ratio to evaluate whether a market is undervalued or overvalued. It’s one of Warren Buffet’s favorite measures as a warning that financial markets might be overvalued and riskier.
Financial accounting is a subdiscipline within accounting that helps organizations provide reporting related to three critical areas of a business: its assets and liabilities (balance sheet), its revenues and expenses (income statement), and its cash flows (cash flow statement). Together those areas can be used for internal and external purposes.
Post-mortem analyses review projects from start to finish to determine process improvements and ensure that inefficiencies are not repeated in the future. In the Project Management Book of Knowledge (PMBOK), this process is referred to as “lessons learned”.
Retrospective analyses are held after a project to determine what worked well and what did not. They are also conducted at the end of an iteration in Agile project management. Agile practitioners call these meetings retrospectives or retros. They are an effective way to check the pulse of a project team, reflect on the work performed to date, and reach a consensus on how to tackle the next sprint cycle.
In essence, a root cause analysis involves the identification of problem root causes to devise the most effective solutions. Note that the root cause is an underlying factor that sets the problem in motion or causes a particular situation such as non-conformance.
A break-even analysis is commonly used to determine the point at which a new product or service will become profitable. The analysis is a financial calculation that tells the business how many products it must sell to cover its production costs. A break-even analysis is a small business accounting process that tells the business what it needs to do to break even or recoup its initial investment.
Stanford University Professor Ronald A. Howard first defined decision analysis as a profession in 1964. Over the ensuing decades, Howard has supervised many doctoral theses on the subject across topics including nuclear waste disposal, investment planning, hurricane seeding, and research strategy. Decision analysis (DA) is a systematic, visual, and quantitative decision-making approach where all aspects of a decision are evaluated before making an optimal choice.
A DESTEP analysis is a framework used by businesses to understand their external environment and the issues which may impact them. The DESTEP analysis is an extension of the popular PEST analysis created by Harvard Business School professor Francis J. Aguilar. The DESTEP analysis groups external factors into six categories: demographic, economic, socio-cultural, technological, ecological, and political.
The STEEP analysis is a tool used to map the external factors that impact an organization. STEEP stands for the five key areas on which the analysis focuses: socio-cultural, technological, economic, environmental/ecological, and political. Usually, the STEEP analysis is complementary or alternative to other methods such as SWOT or PESTEL analyses.
The STEEPLE analysis is a variation of the STEEP analysis. Where the step analysis comprises socio-cultural, technological, economic, environmental/ecological, and political factors as the base of the analysis. The STEEPLE analysis adds other two factors such as Legal and Ethical.
Activity-based management (ABM) is a framework for determining the profitability of every aspect of a business. The end goal is to maximize organizational strengths while minimizing or eliminating weaknesses. Activity-based management can be described in the following steps: identification and analysis, evaluation and identification of areas of improvement.
PMESII-PT is a tool that helps users organize large amounts of operations information. PMESII-PT is an environmental scanning and monitoring technique, like the SWOT, PESTLE, and QUEST analysis. Developed by the United States Army, used as a way to execute a more complex strategy in foreign countries with a complex and uncertain context to map.
The SPACE (Strategic Position and Action Evaluation) analysis was developed by strategy academics Alan Rowe, Richard Mason, Karl Dickel, Richard Mann, and Robert Mockler. The particular focus of this framework is strategy formation as it relates to the competitive position of an organization. The SPACE analysis is a technique used in strategic management and planning.
A lotus diagram is a creative tool for ideation and brainstorming. The diagram identifies the key concepts from a broad topic for simple analysis or prioritization.
Functional decomposition is an analysis method where complex processes are examined by dividing them into their constituent parts. According to the Business Analysis Body of Knowledge (BABOK), functional decomposition “helps manage complexity and reduce uncertainty by breaking down processes, systems, functional areas, or deliverables into their simpler constituent parts and allowing each part to be analyzed independently.”
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.
A stakeholder analysis is a process where the participation, interest, and influence level of key project stakeholders is identified. A stakeholder analysis is used to leverage the support of key personnel and purposefully align project teams with wider organizational goals. The analysis can also be used to resolve potential sources of conflict before project commencement.
Strategic analysis is a process to understand the organization’s environment and competitive landscape to formulate informed business decisions, to plan for the organizational structure and long-term direction. Strategic planning is also useful to experiment with business model design and assess the fit with the long-term vision of the business.
Gennaro is the creator of FourWeekMBA, which reached about four million business people, comprising C-level executives, investors, analysts, product managers, and aspiring digital entrepreneurs in 2022 alone | He is also Director of Sales for a high-tech scaleup in the AI Industry | In 2012, Gennaro earned an International MBA with emphasis on Corporate Finance and Business Strategy.
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