Business objectives and strategy - decision trees

Question 1

how can managers make decisions?

Answer 1

• based on hunches - gut instincts
• based on experience - past decisions
• scientific decision making - using data (quantifiable)

Question 2

what is a decision tree?

Answer 2

a mathematical model used to help managers make decisions when faced with choices (quantifiable)

Question 3

what are the benefits of decision trees?

Answer 3

• managers can analyse possible options and identify opportunity costs –> quantitative data
• forces managers to inject quantifiable analysis into the decision making process (rather than just relying on qualitative info)
• useful to managers when business has encountered similar situations have been faced

Question 4

what are the disadvantages of decision trees?

Answer 4

• accuracy of estimates (affected by external environment, accuracy questioned)
• manager bias (managers pitching ideas have interest in success could manipulate data)
• less useful when business is facing a new situation
• may lead to qualitative data being ignored