Decision Tree analysis. Decision making Decision making is the process of evaluating two or more alternatives leading to a final choice. It is closely.

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Presentation transcript:

Decision Tree analysis

Decision making Decision making is the process of evaluating two or more alternatives leading to a final choice. It is closely associated with planning for the future and is directed towards a specific objective or goal. The care put into each decision often determines the level of outcome. However, since future is uncertain, the best process and best decision need not guarantee a successful outcome. Nevertheless, the best prepared decision is more likely to produce the desired result.

Decision tree analysis Decision Trees are useful tools for choosing between several courses of action. They provide a highly effective structure within which one can explore alternatives, and investigate the possible outcomes of choosing those alternatives. They also enable us to get a picture of the risks and rewards associated with each possible course of action. Decision tree analysis is particularly useful for choosing between different strategies, projects or investment opportunities, particularly when resources are limited.

Elements involved in decision making Decision alternatives or alternative courses of action - which are known to the decision maker. States of nature - which means a possible outcome or consequence resulting from the choice of a decision, over which the decision maker has no control. Payoff - A numerical value resulting from each possible combination of alternatives and states of nature.

Steps in the decision making process Identification of all the courses of action which are available. Listing of all possible future outcomes of the decision, called the states of nature. Expressing the payoffs resulting from each pair of course of action and state of nature. These payoffs are expressed in monetary values. Choosing an appropriate course of action from the given list on the basis of some criterion.