Decision Trees

Question 1

Decision Trees

Answer 1

A method of tracing the alternative outcomes
of any decision.

Question 2

Advantages Of Decision Trees

Answer 2

Clearly lay out the problem so that all options can be
considered.
* Allow managers to analyse fully the possible
consequences and risks of a decision.
* Provide a framework to quantify the values of outcomes
and the probabilities of achieving them.
* Decision trees give an easy-to-understand visual
representation of the problem

Question 3

Disadvantages of Decision Trees

Answer 3

Can oversimplify a decision and focus too much on the
financial outcome.
* Don’t include other factors such as manpower
considerations, managers’ opinions and marketing
issues.
* Probabilities are difficult to predict and may reflect bias.
* There may be other options that are not included in the
decision tree.
* Can be time consuming to construct and may be
interpreted with bias.
* Time lags often occur in decision-making so information
may be out of date.
* Use probabilities which only gives an estimate which
may be inaccurate

Question 4

Qualitative factors

Answer 4

Qualitative factors will also have an influence on the
decision made, such as:
* the effects of decisions on stakeholders e.g., workforce,
management, suppliers and customers
* training costs
* recruitment costs
* capacity management
* marketing impacts.