Decision Making Tree
DECISION MAKING TREE
Description also available in video format (attached
below), for better experience use your desktop.
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Decision is the
process of choosing a course of action from among alternatives to achieve a
desired goal
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The decisions basically are of 3 types
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Strategic Decision
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Concerned with external environment of the
organization
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Administrative Decision
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Concerned with the structuring &
acquisition of the organization resources so as to optimize the performance of
the organization
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Operating Decision
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Concerned with day to day operations of the
organization such as
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Pricing
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Production scheduling
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Inventory level
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A Decision
Tree is a graphical representation of possible solutions to a decision
based on certain conditions
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It is called a decision tree because it
starts with a single root, which then branches off into a number of solutions,
just like a tree
Decision tree symbols
How to draw a decision tree
To draw a decision tree, first pick a medium. You can
draw it by hand on paper or a whiteboard, or you can use special decision tree software. In either case, here are the steps to
follow:
1. Start with the main decision. Draw a
small box to represent this point, then draw a line from the box to the right
for each possible solution or action. Label them accordingly.
2. Add chance and decision nodes to
expand the tree as follows:
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If another decision is necessary, draw another box.
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If the outcome is uncertain, draw a circle (circles represent
chance nodes).
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If the problem is solved, leave it blank (for now).
From each decision node, draw possible solutions. From
each chance node, draw lines representing possible outcomes. If you intend to
analyze your options numerically, include the probability of each outcome and
the cost of each action.
3. Continue to expand until every line reaches an endpoint, meaning that there are no more choices to be made or chance outcomes to consider. Then, assign a value to each possible outcome. It could be an abstract score or a financial value. Add triangles to signify endpoints.
With a complete decision tree, you’re now
ready to begin analyzing the decision you face.
Advantages
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Simple to understand
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Simple to interpret
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Have value even with little hard data
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Can be combined with other decision
techniques
Elements
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Goals
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Decision maker
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Course of action
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States of nature
Video Description
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