## AHP Group Consensus Indicator – how to understand and interpret?

BPMSG’s AHP excel template and AHP online software AHP-OS can be used for group decision making by asking several participants to give their inputs to a project in form of pairwise comparisons. Aggregation of individual judgments (AIJ) is done by calculating the geometric mean of the elements of all decision matrices using this consolidated decision matrix to derive the group priorities.

#### AHP consensus indicator

In [1] I proposed an AHP group consensus indicator to quantify the consensus of the group, i.e. to have an estimate of the agreement on the outcoming priorities between participants. This indicator ranges from 0% to 100%. Zero percent corresponds to no consensus at all, 100% to full consensus. This indicator is derived from the concept of diversity based on Shannon alpha and beta entropy, as described in [2].  It is a measure of homogeneity of priorities between the participants and can also be interpreted as a measure of overlap between priorities of the group members.

#### How to interpret?

If we would categorise group consensus in the three categories low, moderate and high, I would assign the following percentages to these categories:

• low consensus: below 65%
• moderate consensus: 65% to 75%
• high consensus: above 75%

Values below 50% indicate that there is practically no consensus  within the group and a high diversity of judgments. Values in the 80% – 90% range indicate a high overlap of priorites and excellent agreement of judgments from the group members.

#### AHP Consensus indicator and AHP Consistency Ratio CR

AHP allows for (logical) inconsistencies in judgments; the AHP consistency ratio CR is an indicator for this, and – as a rule of thumb – CR  should not exceed 10% significantly. Please read my posts here and here.

It can be shown that,  given a sufficiently large group size, consistency of the aggregate comparison matrix is guaranteed, regardless of the consistency measures of the individual comparison matrices, if the geometric mean (AIJ) is used to aggregate [3] . In other words, if the group of participants is large enough, the consistency ratio of the consolidated group matrix CR will decrease below 10% and is no longer an issue.

Consensus has to be strictly distinguished from consistency. The consensus is derived from the outcoming priorities and has nothing to do with the consistency ratio. Whether you have a small or a large group, in both cases consensus could be high or low, reflecting the “agreement” between group members. Even if you ask a million people, there could be no agreement (consensus) on a certain topic: half of them have the exact opposite judgment as the other half. As a result, the consensus indicator would be zero: there is no overlap, the total group is divided into two sub-groups having opposite opinions.

#### Analyzing group consensus – groups and sub-groups

The beauty of the proposed AHP consensus indicator based on Shannon entropy is the possibility to analyse further, and to find out, whether there are  sub-groups (cluster) of participants with high consensus among themself, but with low consensus to other sub-groups. This can be done using the concept of alpha and beta diversity [2]. I have published an excel template to to analyze similarities between the samples based on partitioning diversity in alpha and beta diversity. It can be also be used for your AHP results to analyse group consensus.

#### References

`[1] Klaus D. Goepel, (2013). Implementing the Analytic Hierarchy Process as a Standard Method for Multi-Criteria Decision Making In Corporate Enterprises – A New AHP Excel Template with Multiple Inputs, Proceedings of the International Symposium on the Analytic Hierarchy Process, Kuala Lumpur 2013`

```[2] Lou Jost, (2006). Entropy and Diversity, OIKOS Vol. 113, Issue 2, pg. 363-375, May 2006 ```

`[3] Aull-Hyde, Erdoğan, Duke (2006). An experiment on the consistency of aggregated comparison matrices in AHP, European Journal of Operational Research 171(1):290-295 · February 2006`

## BPMSG Diversity Online Calculator

If you need a quick calculation of diversity indices from your sample data, you might use my online diversity calculator here. Select the number of categories/classes (2 to 20) and input your samples data (positive integer or decimal numbers). As a result the following parameters and diversity indices will be calculated:

• Richness
• Berger-Parker Index
• Shannon Entropy (nat)
• Shannon number equivalent (true diversity of order 1)
• Shannon Equitability
• Simpson Dominance
• Simpson Dominance (finite sample size)
• True diversity of order 2
• Gini-Simpson Index
• Gini-Simpson Equitability

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## Welcome to BPMSG – May 2013

Concepts, Methods and Tools to manage Business Performance

Dear Friends, dear Visitors,

time for an update on my BPMSG welcome page! Being quite busy the last half year, I didn’t work so much on major articles or videos, but at least I tried to keep my site current with some regular updates.

Related to the analytical hierarchy process (AHP), you might find information about the consistency ratio (CR). CR is one of the most critical issue in the practical application of AHP, as it seems to be difficult for many decision makers to fulfill Saaty’s “ten-percent rule-of thumb”. The way out: either you accept higher ratios (up to 0.15 or even 0.2), modify the judgements in the pair-wise comparisons, or you use the balanced scale instead of the standard AHP 1 to 9 scale. All three can be done in my updated AHP template from Februar 2013.

As I received many requests to extend the number of participants to more than 10, here the detailed procedure, how you can do it by yourself. Extending the number of criteria beyond 10 is more complex and not recommended by me. If you actually have more than 10 criteria please try to group in sub-groups. At the moment I don’t have any planes to extend the number of criteria to more than ten.

I also started a new topic: Diversity. Triggered by some business related questions, I found out that the concept of diversity – as applied in ecology – is very universal, and can be applied in many business areas. You can watch my introduction as video:

I already applied the concept in several areas, and even developed a new consensus indicator for group decision making based on the partitioning of the Shannon entropy.  A paper is submitted for the ISAHP conference in June, and after the event I will place a copy of the paper on my site for download.

For those of you, interested in the topic of diversity and the partitioning in alpha (within group) and beta (in-between group) components my free BPMSG Diversity Calculator could be a useful tool.

Now please enjoy your visit on the site and feel free to give me feedback
it’s always appreciated.

Klaus D. Goepel,
Singapore, May 2013

## Diversity as Business KPI – Alpha and Beta Diversity – Video

The video explains partitioning of Shannon diversity into two independent components: alpha (within group) and beta (in between groups) diversity. It helps to understand beta diversity as a measure of variation between different samples of data distributions. Some practical applications in the field of business analysis are shown.

Enjoy watching!

Any feedback is welcome!

## Hoover Index, Theil Index and Shannon Entropy

Hoover index is one of the simplest inequality indices to measure the deviation from an ideal equal distribution. It can be interpreted as the maximum vertical deviation of the Lorenz curve from the 45 degree line.

Theil index is an inequality measure related to the Shannon entropy. It is often used to measure economic  inequality.

Like the Shannon entropy, Theil index can be decomposed in two independent components, for example to descbribe inequality “within” and “in between” subgroups. Low Theil or Hoover index means low inequality, high values stand for a high deviation from an equal distribution.

With
Ei – Effect in group i, i = 1 to N
E
t – Total sum of effects in all N groups
Ai – Number of items in class i
A
t – Total number of items in all N groups

Theil Index:

Eq. 1a     TT = ln (At/Et) – ∑[ Ei/Et ln (Ai/Ei)]
Eq. 1b
TL = ln (At/Et) – ∑[ Ai/At ln (Ei/Ai)]

Taking relative (proportional) variables
pi = Ei/Et
wi = Ai/At
we get

Eq. 2a      TT = ∑[ pi ln (pi/wi)]
Eq. 2b      TL = ∑[ wi ln (wi/pi)
]

The symmetric Theil index Ts = ½ ( TT + TL) can be expressed as:

Eq. 3      Ts = ½ ∑[ (piwi) ln (pi/wi)]

Comparing the symmetric Theil index with the

### Hoover index

Eq. 4      Hv = ½ ∑ |piwi|

we see that for the symmetric Theil index the difference (piwi) is weighted with the logarithm of pi/wi.

The normalized Theil index ranges from 0 to 1:

Eq. 5     Tnorm = 1 – eT

### How does the Theil index relate to Shannon entropy?

For wi = 1/N (same number of items in all groups) we get with Shannon entropy
H = – ∑ pi ln pi and true diversity D = exp (H):

Eq. 6a      TT = ln (N) – H
Eq. 6b      TTnorm = 1 – D/N

and with
MLD = (1/N) ∑ ln (1/pi)
(MLD = mean logarithmic deviation)

Eq. 7      TL = MLD – ln (N)

For the symmetric Theil index:

Eq. 8     Ts = ½ (MLD – H)

The symmetric Theil index is simply half of the difference between mean log deviation and Shannon entropy.

### Decomposition

The Theil index can be decomposed to find “within group” (w) and “between group” (b) components:

Eq. 9      T = Tw + Tb

For j subgroups (j = 1 to K) with individual Theil index Tj

Eq. 10a   TT = ∑ sj TTj +  ∑ sj ln (sj/wj)
Eq. 10b   TL = ∑ wj TLj + ∑ wj ln (wj/sj)

sj is the share of E in group j (Ej/Etot); wj the relative number of items in subgroup j (Nj/Ntot). The first term in (10) gives the “within group” component, the second the “between group” component.

• hoover index

## Diversity as Business KPI – Alpha and Beta Diversity

The Concept of diversity is well introduced in Ecology, Economy and Information theory. The underlying mathematical theory relates to statistics (probabilities), multivariate analysis, cluster analysis etc. Diversity can be partitioned into two independent components: alpha and beta diversity. In the following the concept of alpha and beta diversity is explained,  using a simple example of selling drinks in different sales areas. It helps to understand beta diversity as a measure of variation (similarity and overlap) between different samples of data distributions, and gives some practical applications in the field of business analysis.

## Introduction

To understand the basic concept of diversity, you might watch my video here; it explains how diversity can be characterized using diversity indices – like the Simpson index – taking into account richness and evenness.

In general the concept of diversity can be formulated using the power mean. The Simpson index is based on the arithmetic mean, in the general concept of diversity it corresponds to a “true” diversity of order two.

## Shannon Entropy

In the following we will use the Shannon diversity index H – in other applications also named Shannon entropy – which is based on the geometric mean, and the “true” diversity of order one. It uses the logarithm, and we will write it here with the natural logarithm

H = – ∑ pi ln pi.

For an equal distribution – all types in the data set are equally common – the Shannon entropy has the value of the natural logarithm of Richness H = ln(R), the more unequal the proportional abundances, the smaller the Shannon entropy. For only one type in the data set, Shannon entropy equals zero. Therefore high Shannon entropy stands for high, low Shannon entropy for low diversity.

Let us go back to our example of selling different drinks in a restaurant.

With seven types of drinks – each selling with 1/7 or 14% – the Shannon entropy equals ln (7) = 1.95

Selling only one type of drink, the Shannon entropy takes a value of zero, the natural logarithm of 1.

Now let us assume we manage a couple of restaurants in different locations, and we get a monthly summary report of total sales of the different type of drinks.

## Comparison of samples

Does it mean we are selling all drinks evenly in all locations?

There are actually two possibilities.

1. The first one: yes, at each location we sell evenly all types of drinks.

High diversity – a Shannon entropy of 1.95 – in Boston, NY, Denver, Austin, etc., resulting in a high diversity of sales for the total sales area.

2. What is the second possibility?

In Boston we are selling coffee only: low diversity with Shannon entropy of zero. Similar in NY; here we are selling tea only, low diversity with Shannon entropy of zero, but selling a different type of drink: tea instead of coffee! Similar in Denver with milk, Austin with coke, and so on.

Looking at our total sales – it looks the same as in the first case – the total diversity is high, as overall we are selling all drinks equally.

## Partitioning Diversity – Introducing Alpha- and Beta-Diversity

Diversity in the individual location is called alpha diversity. Our total sales report – the consolidation of all sales location gives us the gamma diversity, and the difference – gamma minus alpha diversity reflects the beta diversity.

Now I can also explain the reason, why we selected the Shannon entropy instead of the Simpson index: only for the Shannon entropy as a measure of diversity, the partitioning of the overall (gamma) diversity into two independent alpha and beta components follows the simple relation: Hα + Hβ = Hγ

## Beta Diversity – How to interpret?

As we have seen in our simple example:

In case one we find a high alpha diversity in each location, resulting in the same high consolidated gamma diversity taking all locations together. So the difference between alpha and gamma, i.e. the beta diversity, is zero – we have the same sales distribution and a total overlap in all locations.

In case two we find a low alpha diversity in each location, but a high consolidated gamma diversity taking all locations together: In this case the difference between alpha and gamma diversity, i.e. the beta diversity, is high – we have totally different sales distributions among the locations, selling only one, but a different type of drinks in each location – we got totally different distributions without overlap.

Beta diversity is a measure for similarity and overlap between samples of distributions. Partitioning diversity in alpha and beta diversity allows us to gain insight in the variation of distributions – relative abundances – across samples.

## Diversity Calculation in Excel

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## Diversity Calculation in Excel – Diversity Indices and True Diversity

In my video “Diversity Index as Business KPI – The Concept of Diversity” I explain the mathematical concept of diversity introducing the Simpson Index λ and its complement (1-λ) as a measure of product diversification in markets.

Beside the Simpson Index there are many other indices used to describe diversity. I have developed a simple Diversity Excel template to calculate a couple of diversity indices for up to 20 categories. The following diversity indices are calculated:

• Richness
• Shannon entropy
• Shannon equitability
• Simpson dominance
• Gini-Simpson Index
• Berger-Parker Index
• Hill numbers (“true diversity”) and Renyi entropy of order one to four

For a quick calculation of diversity indices you might also use my online calculator

For calculation of Shannon entropy and its partitioning into independent alpha and beta components  see here.

Any feedback is welcome!

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