3.3.3 Decision Trees

Question 1

What key advantages do decision trees provide?

Answer 1

• May reveal options that previously haven’t been considered
• Managers are forced to consider the risks associated with their choice, ahead of implementation
• The quantitative approach requires deep research to be carried out

Question 2

What is a monetary value?

Answer 2

• How much projects will generate and be worth.

Question 3

How do you calculate the expected monetary value ?

Answer 3

(Expected value of success X Probability) + (Expected value of failure X Probability)

Question 4

What are the limitations of using decision trees?

Answer 4

• Constructing decision trees that can support effective decision-making requires skill to avoid bias & takes significant amounts of time to gather reliable data
• Constructed using estimates which rarely take full account of external factors & cannot include all possible eventualities
• The time lag between the construction of a decision tree diagram & the implementation of the decision is likely to further affect the reliability of the expected values