Decision Tree Analysis

1. Decision Tree Analysis
Prof. Priyanka P. Dange
Civil Engineering Department
Sanjivani College of Engineering,
Kopargaon.

2. Introduction
 A decision tree is essentially a graphic diagram.
 One of the best ways to analyze a decision is to
use so-called decision trees.
 It is a useful tool for management decision
makers.
 It is useful in cases where a manager is required
to make a number of sequential decisions.
 Decision trees depict in the form of a ‘tree’, the
decision points, change events and probabilities
involved in various courses that might be
undertaken.

3. Why Decision Tree?
A common problem occurs in business
when a new product is introduced. Manager
must decide whether to install expensive
permanent equipment to ensure production
at the lowest possible cost or to undertake
cheaper temporary tooling that will
involve a higher manufacturing cost but
lower capital investments and will result in
lower losses if the product does not sale as
estimated.

4. . Invest(0.6)
Undertake Development Success (0.7)
Research
Not to Invest(0.4)
Development Fails (0.3)
Discard
Discard
Decision Outcome Termination
3
Decision Tree Example

5. Decision Tree Analysis
This diagram is read it from left to right.
The leftmost node in a decision tree is called as a
root node or a decision node and can be
represented by small square( )
The branches emanating to the right from a
decision Node represent the set of decision
alternatives that are available. One and only one
of these alternative can be selected.
The small circles( ) in the tree are called chance
nodes.

6. The number shown in parentheses on each
branch of a chance node is the probability that
the outcome shown on that branch will occur at
the chance node.
The right end of each pass through the tree is
called an endpoint and each endpoint
represents the outcome of following a path
from the root node of the decision tree to that
endpoint.

7. Steps in Decision Tree Analysis
Identifying the problem and
alternatives.
Delineating the decision tree.
Specifying probabilities and monetary
outcomes.
Evaluating various decision
alternatives.

8. Thank You……