3.3.3 Decision Trees

Question 1

What is quantitative approach?

Answer 1

This is where information on which decisions are based and the outcomes of decisions are expressed as numbers.

Question 2

What are decision points?

Answer 2

Points where decisions have to be made any decision. Tree are represented by squares and are called decision points.

Question 3

What are outcomes?

Answer 3

Point where there are different possible outcomes In a decision tree are represented by circles and I called chance notes. At these chance it can be shown that a particular course of action might result in a number of outcomes.

Question 4

Probability or chance?

Answer 4

The likelihood of possible outcome is happening is represented by probabilities in decision trees. The chance of a particular outcome occurring is given a value. If the outcome is certain that the probability is one, alternatively, if there is no chance of a particular outcome occurring the probability will be zero.

Question 5

Expected monetary values ?

Answer 5

This is the financial outcome of a decision. It is based on their predicted profit or loss of an outcome and the possibility of that outcome occurring.

Question 6

What is a rollback technique

Answer 6

Can be then used to work out the expected value of the third option seeking planning permissions. This means working from Right to left, calculating the expected values at each note in the diagram.

Question 7

Advantages of decision trees?

Answer 7

-Construction, the tree diagram, may show possible courses of action not previously considered.
- They involve placing numerical values on decisions. This tends to improve results.
- They force management to take account of the risks involved in decisions and help to separate important from an unimportant risk

Question 8

Limitations of decision trees?

Answer 8

• The information of which technique ‘throws out’ is not exact. Much of it is based on probabilities, which are often estimated.
  -Decisions are not always concerned with quantities and profitability is. They often involve people and are influenced by legal constraints or peoples opinions. For example.
  -Time lags often occur in decision-making. By the time a decision is finally made some of the numerical information may be out of date.
• Time consuming