| Applying science to business management |
   
Decision Tree Analysis
A decision tree is a special type of model within DecisionPro.
It is used to select the best course of action in cases where you
face uncertainty as in, for example, deciding how much inventory
to build when sales forecasts are uncertain; or, choosing between
litigation and an out-of-court settlement.
Litigation Decision
In making a decision, a prudent manager will consider all
options, the potential consequences of each option, and all
contingent actions. Decision trees provide an elegant framework
for combining this information with consequence probabilities and
outcome values to help select the best option. If decision trees
are new to you, the Decision Tree Wizard will guide you
through constructing decision tree models and interpreting the
results.
Land Investment Decision
Once you have modeled a decision using a decision tree,
DecisionPro will automatically analyze the tree to help you
better understand and communicate the risks involved. For
example, apply the Risk Profile tool and DecisionPro will
construct a graph or table illustrating all possible outcomes and
probabilities.
DecisionPro also calculates the value of knowing what will
happen in the future (value of perfect information). This helps
you determine how much you should spend on market or other
research to refine your assumptions. You can even specify your
personal risk aversion when constructing decision models.
For more information on decision tree analysis, see Decision Tree Analysis, page 79.
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