Decision trees - Business management toolkit

Question 1

Chance nodes

Answer 1

Are used to show the different probable outcomes of a decision. They are shown as circles Probabilities (or chances) are generally beyond the control of a business

Question 2

Decision nodes

Answer 2

Are used when there is a choice or decision to be made. The nodes are shown as squares. The decision maker has at least some control over decision nodes.

Question 3

Decision trees

Answer 3

Are a quantitative decision-making tool that calculates the probable values of different options available to a business. The tool helps managers to minimise the risks of decision-making.

Question 4

Expected value (expected monetary value)

Answer 4

Refers to the average outcome if the decision was made many times over

Question 5

Rejected decisions

Answer 5

Are the unwanted outcome branches in a decision tree. They are indicated by the use of two parallel lines for all branches or options that are undesirable.