Decision Tree Analysis

Decision Tree Analysis provides a tool to study and decide on various choices available at a given point of time. It uses models of decisions which help to study the possibility of an occurrence of a particular consequence. Decisopn Tree Analysis also studies the cost of resources, utilities, and the chances of event outcomes.
When there are several options to choose from, Decision Tree Analysis can be a wise alternative to choose and judge, among the various options available. They give a structure or model that effectively investigates various probable outcomes of each option.

Decision Tree Analysis also helps to design a balanced and rational picture of rewards and risks, that are associated with each possible optional action. There are some rules associated with use of Decision Tree Analysis. For instance, when a business needs to make a decision on two courses of action, the decision is represented in a small square drawn at the left of a piece of paper.
Each possible and probable solution is written on the right hand side of the paper, along lines drawn from the square. At the end of the lines, the results are considered. It should be noted that the lines should be drawn keeping distance from one another, so that no problem arise later.
The results can be either decisions or uncertain decisions. If the result considered is a decision, then another square is drawn and the same process is followed again. If the result is an uncertain decision, then it is noted by a circle in the decision tree. The decision is written above the circle or square. The possible outcomes resulting from the circle are also represented by drawing lines. The entire process is repeated until the final outcomes of the decision are reached.

Evaluation of Decision Tree Analysis is carried out by assigning cash value against each possible result or outcome. After working out the outcome values and assessing the probability of each result and outcome, the value in keeping a particular decision is calculated.

With proper application of Decision Tree Analysis techniques, the best possible option that is required to develop a new service or new product can be obtained. It also gives the best decision depending on the available information, and gives a framework for calculating the outcome values.

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Last Updated on : 27th June 2013

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