Once the AHP tree has been created and weighted, one area that causes a bit of thinking is the criteria to be used to mark the vendor’s price. Let us assume we have four bids priced at: £10M, £8M, £7M and £6M.

My most used formula is: Score=10*(1-(Price-Min)/(Max-Min)) where Min is the lowest price and Max is the highest price. The scores become: 0, 5, 7.5 and 10 respectively. The impact of the scores depends on the weighting of the price element in the AHP tree. If a weighting of 10% is agreed, then the contribution to the weighted score is: 0, 0.5, 0.75, and 1.

Another formula is: Score=10*(1-Price/Max). The scores become: 0, 2, 3 and 4 out of 10 and using the same 10% the weighted contribution becomes: 0, 0.2, 0.3 and 0.4. This feels like a more fair evaluation. Actually, this formula gives the same results as the first calculation if used with a larger weighting. If we scale the 10% weighting, used above, with a factor of 10/4, (i.e. using the best scores for the two formulae), we get 25%. Using this weighting the contribution using for the second formula results becomes: 0, 0.5, 0.75 and 1.0.

I have only used the first formulae, letting the weighting provide the required impact. My experience has been that organisations set the price element as low importance when they first agree the AHP weighting; say 20%. However, when the costs come in higher than expected they then want to revisit the price weighting and increase it, often to around 35% - all part of the learning curve…

Ian Richmond

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