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ABSTRACT

This research discusses the possibility and usefulness of using Analytic Hierarchy Process (AHP) as a tool for decision making in risk management. The study is motivated by the wide application of AHP in finance and banking. AHP as a decision making tool is widely applied in supply chain risk management and project risk management. The application of AHP in the risk management of an enterprise has not yet been explored. Risk management is an established and accepted process as evidenced by much research in this area and published regulations and standards. Despite this decision making in risk management tends to be informal depending on intuition and marked by an absence of formal analyses. AHP is able to assist decision maker in making complex decision. To see whether AHP is the tool for risk management a distinction between risk management and risk management decision making is made. Potential application in risk management is discussed. An example of risk management decision making problem is presented to show how risk management decision making problem is structured using AHP.

Keywords: risk management, decision making, analytic hierarchy process

This research discusses the possible application of AHP (Saaty, 1980) in risk management. The aim is to answer the question if AHP a useful tool for decision making in risk management. AHP is used in various area such as education, engineering, government, industry, management, manufacturing, personal, political, social and sports (Vaidya & Kumar, 2006). In finance AHP is applied in capital budgeting, selecting financial instruments, mergers and acquisition, predicting bankruptcy and forecasting foreign exchange rate (Stuer & Na, 2003; Zopounidis & Doumpos, 2002). AHP in risk management is mainly applied in project risk management and supply chain risk management (Verbano & Venturini, 2011).