Analytical Hierarchy Process Free-Samples for Students- Assignmenthelp

Question: What are the Advantages and Disadvantages of Internal Rate of Return (IRR) and Analytical Hierarchy Growth. Answer: Internal rate of return Advantages Simplicity the interpretation is very simple after the calculation of time value of money. Further, it is simple for the managers to visualize and therefore the method is preferred Time value of money the main advantage is that it accounts for the time value of money while analysing the project Required rate of return the required rate of return is the rough forecast by the executives and the IRR completely does not based on the required rate of return. Once the IRR is calculated, it can be compared with the required rate and the gap can be found (Santandrea et al., 2017). Disadvantages Economies of scales under the IRR model, the economies of scales are not taken into account. Therefore, the changes in the exchange rate and the benefits are not accounted for. Impractical assumption for implicit rate for investment while the project is analyzed under the IRR model, it assumes that the future cash flows will be reinvested at the IRR. Therefore, if a project is having lower IRR, the low rate of return will be assumed and vice versa. Mutually exclusive when the customers have the mutually exclusive projects, it becomes difficult for the investor to decide whether the investment is profitable or not, in other words, it become difficult to analyse which project is best. Analytical hierarchy process Advantages Priorities derivation after the comparison matrices are filled, the priorities can be calculated using this model. With regard to usage of this method, the case is started from the consistent matrix with the priorities that are known. Consistency priorities are relevant only when it is obtained from the consistent or approximately consistent matrices. Therefore, the consistency check shall be used, which is possible only through using this system. Sensitivity analysis the last stage of the process of decision that is the sensitivity analysis where data are little bit modified after its input with regard to evaluate the outcomes of the results. The sensitivity analysis is performed at its bet with the use of this model (Subramoniam et al., 2013). Disadvantages Structuring the problem as different structure leads to different ranking, the problem structuring step is very crucial. When big numbers of elements are aligned with the AHP hierarchy, the decision makers faces issues regarding arranging the elements as these are arranged in cluster way and cannot be differentiated in the extreme way. Pair wise comparison the comparisons under this model are documented in the positive reciprocal matrix. However, only in specific cases like currency exchange, the non-reciprocal matrices can be utilised. Further, the choice of the experts do not provide the projection for not to be reciprocal (Anand et al., 2013). From the given case study, it is assumed that the Analytical hierarchy process and Internal rate of return both are best as they are dealing in the replacement of water treatment plant, named as Mt Crosby West Bank WTP projects and for some of their decision making IRR will be most appropriate and for some other decision making the AHP model will be most appropriate. The AHP model will assist them in the following way: This method is convenient and straightforward and will assist the managers in taking the decisions related to water treatment plant For the pair wise comparison this method is most appropriate and the business of the case study needs to make pair wise comparisons for the replacement Evaluation consistency various evaluation are made consistently through this method Versatility this method can be used with versatile projects. As the business is carried out for the water treatment related projects, therefore, this method is best suited for the business. Clear comparison the quantitative and qualitative comparison for various models are easy and simple for the decision makers to digest. On the other hand, the IRR method is useful in the following ways: Time value of money as the business involved the water treatment projects, it takes longer period to complete the project. Therefore, the time value for the money is very crucial to be calculated. Under this method, the management can easily calculate the future value of the current expenses (Guerra, Magni Stefanini, 2014). Hurdle rate the business must have some required rate of return for the sustainability of the business. Therefore, if the IRR is found, it can easily be compared with the required rate and the business can evaluate whether their projects are profitable or not. Further, the WTP project involves various other decision-making related to tendering stage, pre-construction stage, pre-initiation stage, construction stage, therefore, it requires to considerable time and various stages. For the calculation of viability for the different stages, the AHP process is most suitable for taking decisions to reach the ultimate goal. On the other hand, as the project will involve considerable time to get completed, it will require to calculate the future value of expenses and the future value of profits, which is possible only through the IRR method. Reference Anand, A., Kant, R., Patel, D. P., Singh, M. D. (2015). Knowledge management implementation: a predictive model using an analytical hierarchical process.Journal of the Knowledge Economy,6(1), 48-71. Guerra, M. L., Magni, C. A., Stefanini, L. (2014). Interval and fuzzy average internal rate of return for investment appraisal.Fuzzy Sets and Systems,257, 217-241. Santandrea, M., Sironi, A., Grassi, L., Giorgino, M. (2017). Concentration risk and internal rate of return: Evidence from the infrastructure equity market.International Journal of Project Management,35(3), 241-251. Subramoniam, R., Huisingh, D., Chinnam, R. B., Subramoniam, S. (2013). Remanufacturing Decision-Making Framework (RDMF): research validation using the analytical hierarchical process.Journal of Cleaner Production,40, 21