Decision tree

decision tree

a visual organizational planning tool to assist senior managers in making informed choices based on the probability of the various outcomes and expected returns for a particular project or decision

decision tree chance node

represented as circles. they represent the probable outcome of a particular decision.

decision tree decision node

represented as squares. they represent a decision that needs to be made

decision tree cross-out lines

represent rejection of an option based on quantitative grounds.

advantages of a decision tree

• offers managers a visual representation of different decisions and choices with probable or quantifiable outcome to make more informed decisions

• helps managers consider financial risks involving different options

• results are easy to understand with quantitative results to support decision making

disadvantages of a decision tree

• purely quantitative, doesn’t consider qualitative factors that often affect decision making

• the outcomes are only a prediction

• can be difficult to construct for very complex decisions with numerous and interconnected options