2.2d Decision Trees Flashcards
1
Q
Decision tree definition
A
Model of the various options available in a decision
See diagram
2
Q
What do squares represent in decision trees?
A
Decisions
3
Q
What do circles represent in decision trees?
A
Uncertain outcomes
4
Q
Advantages of decision trees
A
- Sets out problem clearly
- Considers all opportunities
- Useful when outcomes are uncertain
5
Q
Disadvantages of decision trees
A
- Difficult to get accurate data
- Estimates may not be reliable
- Data may be historical
6
Q
Tactical decisions features
A
- Short to medium term
- Concerned with specific areas or functions
7
Q
What are strategic decisions concerned with?
A
The general direction of the business
8
Q
Expected value of outcome formula:
A
Expected value = probability x pay-off
9
Q
Net gain formula:
A
Net gain = EV - initial cost
