Decision Tree

Decision Tree

 

 

Decisions can be complex and uncertain. Decision trees are a tool for illustrating and anlaysing decisions and their possible consequences. The tree helps to clearly show:

• Factors in a decision
• Identifying and managing uncertainty and risk within a decision
• Consequences of a decision

Decision trees are drawn from left to right. They expand branching out until a consequent is reached. A decison Tree consists of 3 types of nodes:

• Decision nodes (represented by squares)
• Chance nodes (represented by circles)
• End nodes (represented by triangles)

 

For example say you have to make a decision about improving a product your company makes. This gives you 4 basic choices:

1. Develop a new product
2. Do nothing and stay with the old product
3. Enhance the old product
4. Replace the product with a 3rd party product.

The decision tree below illutstrates these choices and the estimated sales and their probability.