A Decision Tree is a visual decision-making tool that maps out choices, possible outcomes, and consequences in a structured way. It helps evaluate risks, compare options, and make informed decisions.
- Break down complex decisions into manageable steps 🔍
- Compare multiple options & their outcomes 🎯
- Assess risks, probabilities, and expected values ⚖️
- Improve strategic planning & forecasting 🔮
- Identify the main problem or choice to be made.
- Clearly outline the possible options.
- Each branch represents a possible choice.
- Include factors like costs, benefits, and uncertainties.
- Expand branches to show potential consequences of each choice.
- Consider both positive and negative outcomes.
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Estimate probabilities for uncertain outcomes.
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Calculate expected value (EV) using:
EV = Probability × Outcome Value
- Compare expected values and risk levels.
- Select the option with the most favorable outcome.
- ❌ Overcomplicating the tree → Keep it clear & focused.
- ❌ Ignoring probabilities → Use data to estimate likelihoods.
- ❌ Neglecting alternative factors → Consider costs, time, and feasibility.
- ❌ Failing to update analysis → Reassess as new information emerges.
- 🖥️ Digital: Lucidchart, Miro, Microsoft Visio, Google Sheets
- 📌 Physical: Whiteboards, Sticky Notes, Hand-drawn Flowcharts
Scenario: A company is deciding whether to expand to a new market or improve existing operations.