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Decision Tree

Decision trees are a planning tool that enable businesses to quantify decision making when outcomes are uncertain. They place numerical values on potential outcomes to allow comparison of different decisions. Key steps in constructing a decision tree include representing decisions as squares and chances as circles. Probabilities and expected outcomes are used to calculate the likely return of different decisions. While decision trees provide a systematic approach, their accuracy depends on the reliability of the data and probabilities used. Group decision making can leverage different perspectives but also has disadvantages like social pressure and domination by some individuals. Effective techniques include consensus building, brainstorming, and nominal group processes.

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562 views16 pages

Decision Tree

Decision trees are a planning tool that enable businesses to quantify decision making when outcomes are uncertain. They place numerical values on potential outcomes to allow comparison of different decisions. Key steps in constructing a decision tree include representing decisions as squares and chances as circles. Probabilities and expected outcomes are used to calculate the likely return of different decisions. While decision trees provide a systematic approach, their accuracy depends on the reliability of the data and probabilities used. Group decision making can leverage different perspectives but also has disadvantages like social pressure and domination by some individuals. Effective techniques include consensus building, brainstorming, and nominal group processes.

Uploaded by

flynfairy
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PPT, PDF, TXT or read online on Scribd
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Decision Trees

SOMESH NAUTIYAL PRINCIPLES OF MGMT. PGPPE + MBA(FEB11 ) RAI BUSINESS SCHOOL

Decision Trees

Planning Tool

Decision Trees
Enable a business to quantify decision making. Useful when the outcomes are uncertain. Places a numerical value on likely or potential outcomes. Allows comparison of different possible decisions to be made

Limitations
How accurate is the data used in the construction of the tree? How reliable are the estimates of the probabilities? Data may be historical does this data relate to real time? Necessity of factoring in the qualitative factors human resources, motivation, reaction, relations with suppliers and other stakeholders.

Process

Constructing a decision tree


Two symbols are used in decision trees: Square : is used to represent a decision. Circle chance. : is used to represent a

The Process
Economic growth rises 0.7 Expected outcome Rs.300,000

0.3 Expand by opening new outlet Economic growth declines Expected outcome -Rs.500,000

Maintain current status Rs.00 The circle denotes the point where different outcomes could occur. The estimates of the probability and the knowledge of the expected outcome allow the firm to make a calculation of the likely return. In this example it is: Economic growth rises: 0.7 x Rs.300,000 = Rs.210,000 Economic growth declines: 0.3 x Rs.500,000 = -Rs.150,000 The calculation would suggest it is wise to go ahead with the decision ( a net benefit figure of +Rs.60,000)

The Process
Economic growth rises 0.5 Expected outcome Rs.300,000

0.5 Expand by opening new outlet Economic growth declines Expected outcome -Rs.500,000

Maintain current status Rs.00 Look what happens however if the probabilities change. If the firm is unsure of the potential for growth, it might estimate it at 50:50. In this case the outcomes will be: Economic growth rises: 0.5 x Rs.300,000 = Rs.150,000 Economic growth declines: 0.5 x -Rs.500,000 = -Rs.250,000 In this instance, the net benefit is -Rs.100,000 the decision looks less favourable!

Advantages

Disadvantages

Group Decision-Making Requirements


Effective decision-making in groups depends on:
1) Developing a clear understanding of the decision situation. 2) Developing a clear understanding of the requirements for an effective choice. 3) Thoroughly and accurately assessing the positive qualities of alternative solutions. 4) Thoroughly and accurately assessing the negative qualities of alternative solutions.

Advantages of Group Decision-Making


1) Greater pool of knowledge
Two minds are greater than one

2) Different perspectives
Differing points of view

3) Greater comprehension
Accepting/understanding final decision based on all options

4) Increased acceptance
Sense of ownership

5) Training ground
Hands on experience

Disadvantages of Group DecisionMaking


1) Social Pressure
Not wanting to rock the boat

2) Domination by a vocal few


Controlled by the loudest and longest

3) Logrolling
Putting ones vested interest ahead of the group

4) Goal Displacement
Ignoring the primary task in favor of secondary considerations

5) Group think
Putting unanimity before sound judgment

Group Problem-Solving Techniques


Consensus
Everybody agrees

Brainstorming
Generate a quantity of ideas Seven Rules of Brainstorming

Nominal Group Technique


Generating ideas and evaluate solutions

The Delphi Technique


Generating ideas from experts

Computer-Aided Decision Making

Thank You

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