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:
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.
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.
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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.
