Decision Tree Analysis

The Decision Tree Analysis Add-in gives the Vanguard System™ classic decision tree analysis and Markov simulation capabilities.

Decision trees are used to select the best course of action in cases where you face uncertainty. For example, decision trees are applied in deciding how much inventory to build when sales forecasts are uncertain, or when choosing between litigation and an out-of-court settlement. In helping you to select the best option, decision trees provide an elegant framework for combining all options involved in a decision with consequence probabilities and outcome values.

Analysis Tools

Once you have modeled a decision using a decision tree, Vanguard will automatically analyze the tree to help you better understand and communicate the risks involved. For example, Vanguard will construct a risk profile graph or table illustrating all possible outcomes and probabilities. Vanguard 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 analyzing decision models.

Land Investment Decision

Litigation Decision

Risk Profile Graph

Risk Aversion (Utility)

Health Cost Markov Simulation

Markov Simulation Results