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Decision Tree

The document presents information on decision tree analysis from a student project presentation. It includes definitions of decision tree analysis and key components like decision nodes, chance nodes, and end nodes. An example decision tree is shown analyzing potential project choices and their expected profits. The summary is: The presentation discusses decision tree analysis for business decision making. It defines decision trees as visual models for complex decisions that include decision nodes, chance nodes, and end nodes. An example tree models potential profits from building different apps, finding the team productivity app likely yields the highest expected value. The presentation also covers using decision trees to analyze investment choices under uncertain conditions.

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Mohamed Israth
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© © All Rights Reserved
Available Formats
Download as PDF, TXT or read online on Scribd
81 views

Decision Tree

The document presents information on decision tree analysis from a student project presentation. It includes definitions of decision tree analysis and key components like decision nodes, chance nodes, and end nodes. An example decision tree is shown analyzing potential project choices and their expected profits. The summary is: The presentation discusses decision tree analysis for business decision making. It defines decision trees as visual models for complex decisions that include decision nodes, chance nodes, and end nodes. An example tree models potential profits from building different apps, finding the team productivity app likely yields the highest expected value. The presentation also covers using decision trees to analyze investment choices under uncertain conditions.

Uploaded by

Mohamed Israth
Copyright
© © All Rights Reserved
Available Formats
Download as PDF, TXT or read online on Scribd
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19P601 - QUANTITATIVE METHODS IN MANAGEMENT

ASSIGNMENT PRESENTATION

TOPIC : DECISION TREE

TEAM - 7
20P111 - MANIVASAKAM S
20P120 - SANJAY S
20P124 - SWEETON VEDHAMUTHU P
20P216 - PRAVEEN KUMAR S
DECISION MAKING THEORY
Decision making is a integral part any business organization. It is a
continuous process in selecting the best among the decisions and its
classification as follows,
● Decision under certainty
● Decision under risk
● Decision under uncertainty

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DECISION TREE ANALYSIS
● Decision tree analysis involves visually outlining the potential outcomes,
costs, and consequences of a complex decision.
● These trees are particularly helpful for analyzing quantitative data and
making a decision based on numbers.

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DECISION TREE SYMBOLS
● Decision nodes: Decision nodes are squares and represent a decision
being made on your tree.
● Alternative branches: Alternative branches are lines that branch out
from one decision on your decision tree.
● Chance nodes: Chance nodes are circles that show multiple possible
outcomes.
● End nodes: End nodes are triangles that show a final outcome.

DN CN
EN

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DECISION TREE
ANALYSIS IN FIVE STEPS

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WHERE IS DECISION TREE USED?
● Decision tree analysis is used to make decisions in many areas including
operations, budget planning, and project management.
For example,
If you’re trying to determine which project is most cost-effective, you
can use a decision tree to analyze the potential outcomes of each project and
choose the project that will most likely result in highest earnings.

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OBJECTIVE

● Construct Decision Tree


● Make Decision using Expected Values

SAMPLE EXAMPLE:

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ADVANTAGES AND DISADVANTAGES
Pros: When you’re struggling with a complex decision and juggling a lot of data, decision
trees can help you visualize the possible consequences or payoffs associated with each
choice.

➢ Transparent
➢ Efficient
➢ Flexible

Cons: There are drawbacks to a decision tree that make it a less-than-perfect


decision-making tool. By understanding these drawbacks, you can use your tree as part
of a larger forecasting process.

➢ Complex
➢ Unstable
➢ Risky 14
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EXAMPLE:

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Decision nodes from this example:
Build new scheduling app: $50K
Upgrade existing scheduling app: $25K
Build team productivity app: $75K
Chance nodes from this example:
Large and small revenue for decision one: 40 and 55%
Large and small revenue for decision two: 60 and 38%
Large and small revenue for decision three: 55 and 45%
End nodes from this example:
Potential profits for decision one: $200K or $150K
Potential profits for decision two: $100K or $80K
Potential profits for decision three: $250K or $200K

Although building a new team productivity app would cost the most money for the
team, the decision tree analysis shows that this project would also result in the most
expected value for the company.
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EXAMPLE:
There is a 0.65 probability of no growth in the investment climate and 0.35 probability
of rapid growth. The payoffs are $500 for a bond investment in a no-growth state, $100
for a bond investment in a rapid-growth state, -$200 for a stock investment in a
no-growth state, and a $1100 payoff for a stock investment in a rapid-growth state.

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THANK YOU
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