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Decision Tree Analysis: Sumana Chaudhuri Session 3

1. Decision tree analysis is a diagram that can help decision makers choose between options by projecting possible outcomes. 2. A decision tree is constructed from right to left, with event nodes as squares and decision nodes as circles connected by branches showing probabilities. 3. Decision trees are easy to understand, take small details into account, save time, and work well for multi-stage decisions, making them useful for business decisions around rebranding, expansion, and market strategies.

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25 views16 pages

Decision Tree Analysis: Sumana Chaudhuri Session 3

1. Decision tree analysis is a diagram that can help decision makers choose between options by projecting possible outcomes. 2. A decision tree is constructed from right to left, with event nodes as squares and decision nodes as circles connected by branches showing probabilities. 3. Decision trees are easy to understand, take small details into account, save time, and work well for multi-stage decisions, making them useful for business decisions around rebranding, expansion, and market strategies.

Uploaded by

ShrutiKulkarni
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
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Decision Tree Analysis

Sumana Chaudhuri Session 3

Business Idea Generation

#1

#2

Option 1

Option 2

Which one do you choose? Candy Shop Lemonade Stand

Business Idea

$ 100
$ 90

Possible Outcomes: Which one do you choose?


Candy Shop Business Idea 50% Success 50% Failure

Lemonade Stand

50% Success
50% Failure

Comparison of Expected values


Expected Value for Candy Shop = 50% $100 + 50% $30 = $ 35 Expected Value for Lemonade Stand

Which one do you choose now and why?

Decision Tree Analysis


Scope and Objective

Definition
An analysis diagram, which can help aid decision makers, when deciding between different options, by projecting possible outcomes.

How to construct a decision tree?


A decision tree is used from right to left, and calculations are made to show the benefits or potential problem areas. An event node is represented with a square; a decision node is represented with a circle. Branches are represented by the choices, accompanied with the probability factor. The probability of each option is shown above each branch. The two or more branches that sprout from the same node must all add up to one (100%)

Advantages of using a decision tree


1. It is very easy to understand and interpret for any reader. 2. Small details that may have been missed are taken into consideration. 3. Saves time in the long run; once it is laid out your path to success is easy to follow. 4. They work well with multi stage/phase decisions.

Uses of decision tree analysis in business


Major re-branding in organizations Deciding whether to expand business, market penetration, market development, diversification, etc. and in which directions

Next Session
Fun with Decision Tree we would enjoy some exciting numerical using Decision Tree Analysis! Keep yourself in touch with numerical examples from the book and we would solve couple of them in a specially designed Tutorial Session

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