decision trees and critical path analysis Flashcards
what Is a decision tree
a decision tree is a mathematical mode used to help managers decide on what strategic decision should be made for the largest net gain
uses estimates and probabilities to calculate likely outcomes
how to draw a decision tree
- draw a square
- from the square draw lines off for each decision and one extra for- do nothing
- top of each line= decision, bottom= cost
- from each line except the do nothing draw a circle and label 1,2,3 etc
- from this circle draw 2 further lines
- top of the line = best case/ worst case, bottom of line = probalbility=1
- at the end of each line should be the final result
then calculate EV and net gain
how to calculate Expected value and net gain
EV= final result X probability for each decision
net gain= EV each strategy/ decision - the cost
advantages of decision tree
- allows us to quantify decisions into a simple and easy form which can be clearly understood minimising the effect human error
- allows us to compare each decision, managers can fully analyse possible risks and concequences
- highlights the likelihood of outcome which can be included in decision making
able to evaluate which option is the best for the business
takes account which decisions are high/low risk allowing for better decision making
disadvnates of decision tree
- if one input is incorrect can completely change structure of decision tree and conclusions formed based on decision tree leading to decisions made not best for the business
- need to consider hoe valid where and how probabilitys and final result have been calculated what data has been used as can be bias
- doesn’t consider QUAL actors such as PESTLE, training costs, management, suppliers, customers
-assumes that outcomes are predictable which is not realistic as in the business world things are always changing- very dynamic which the tree is not
relies heavily on probability and financial outcomes
- can be come overly complex and confusing
evaluation of decision tree
- depends upon the validity of the data used in the decision tree as to whether the conclusions are useful and correct- need to be based on valid data
- must be used alongside other decision making models
- need to consider qual factors e.g. human emotions, intuition, PESTLE , societal impacts not considered harder to quantify
what is critical path analysis
- technique used to dentify order in which all axtivities need to be completed when planning a complex project
- organise an order to show which activities can be done simultaneously and which are dependant upon earlier activities
- allow for identification of EST, LFT
what is critical path analysis used for
- used to allocate resources within a project
-jusge how long a project should take to complete
-recognise acitivities critical to the project being completed on time- reallocate resources ensure these are priority
-allows more efficient use of time and material
- meet critical deadlines ensure customers aren’t let down
-highligh tissues early and solve them ensure projects aren’t delayed
what info is needed for CPA
- activities which need to be completed
-estimate time for each activity- duration
- which activities can be comepleted simultaneously - dependancies- e.g. which activities cant be completed without other activities being completed first
what does it calculate
- critical path
EST, LFT, that each activity can start without making project longer
- Float, can be delayed without making project longer
how to calculate a float time
LFT ( right ) - duration - EST ( left )
advantages of critical path analysis
helps reduce risk and costs of complex project as it allows us to effectively manage resources and save time, sets out visual representation make sure less chance of error/ confusion as able to identify which taks can be carried out at the same time and limit costs, and risks of not being finished o time/ tasks done in Wong order
-encourages careful assessment of requirements of each activity- what needs to be completed before another activity can be completed
- identify activities with a float to help reallocate resources to critical path prevent delays and disatisfying customers
-helps simplify complex project
- helps highlight issues early and solve
- less waiting Time, identify activities that can be completed at same time
disadvantages of critical path analysis
- reliability largely based on accurate assumptions based on how long something will take
- this depends on skilll of individual producing estimates of time each activity will take/ experience
- doesn’t guarantee success still requires managers to manage project propely
-resources may not be transferable.g. may require different labour skills
-could become too complex and confusing- may need to break down into smaller tasks
-may be too optimistic with time frames- leading oto negative consequences….
doesn’t consider unexpected events e.g. bad weather, delayed suppliers, sub- contractors missing deadlines
how to draw CPA
always EST =0 BEGIN
EST left to right adding duration from previous, select number which creates thebhighest figure
LFT= right to left, take away duration from serious LFT, select duration creates lower figure
critical path= LFT=EST
what should be considered when analysing
if activity is on critical path, if so could resources be allocated to activities with float- not on critical path
what would be done if CP tasks needed to be completed in a shorter period of time
- allocate resources from activities wit float time e.g. staff, tools- make sure correct skills
-speed ip critical path tasks, although quality may suffer
- hire more staff, although increases costs so must consider budget/ profit margins
evaluation
when done appropriately will help projectt run smoother and more time effectively
depends on experience of thoes running CPA and reliability of duration
doesn’t ensure quality is just focused on meeting deadlines- need to be used alongside other decision making models and perhaps quality control
