Decision Tree Analysis
- 1. Decision Tree Analysis Prof. Priyanka P. Dange Civil Engineering Department Sanjivani College of Engineering, Kopargaon.
- 2. Introduction A decision tree is essentially a graphic diagram. One of the best ways to analyze a decision is to use so-called decision trees. It is a useful tool for management decision makers. It is useful in cases where a manager is required to make a number of sequential decisions. Decision trees depict in the form of a ‘tree’, the decision points, change events and probabilities involved in various courses that might be undertaken.
- 3. Why Decision Tree? A common problem occurs in business when a new product is introduced. Manager must decide whether to install expensive permanent equipment to ensure production at the lowest possible cost or to undertake cheaper temporary tooling that will involve a higher manufacturing cost but lower capital investments and will result in lower losses if the product does not sale as estimated.
- 4. . Invest(0.6) Undertake Development Success (0.7) Research Not to Invest(0.4) Development Fails (0.3) Discard Discard Decision Outcome Termination 3 Decision Tree Example
- 5. Decision Tree Analysis This diagram is read it from left to right. The leftmost node in a decision tree is called as a root node or a decision node and can be represented by small square( ) The branches emanating to the right from a decision Node represent the set of decision alternatives that are available. One and only one of these alternative can be selected. The small circles( ) in the tree are called chance nodes.
- 6. The number shown in parentheses on each branch of a chance node is the probability that the outcome shown on that branch will occur at the chance node. The right end of each pass through the tree is called an endpoint and each endpoint represents the outcome of following a path from the root node of the decision tree to that endpoint.
- 7. Steps in Decision Tree Analysis Identifying the problem and alternatives. Delineating the decision tree. Specifying probabilities and monetary outcomes. Evaluating various decision alternatives.
- 8. Thank You……