Decision Tree Flashcards
(3 cards)
What are the benefits of a decision tree analysis?
Simplicity and clarity: they are relatively simple to construct and offer a clear, easy to understand Kew of complex decisions. They require minimal data preparation.
Identifies a new course of action: it reveals possible alternatives that decision makers might not have previously considered. This means that managers can select the best poss course of actions, sustaining long term profitability and guiding decision making.
What are the drawbacks of a decision tree?
Suspectabke to changes in the business environment: it may become outdated if economic conditions or the business environment changes. This means that the process may be based on irrelevant information.
Reliance on estimates: based on probabilities which may not always be reliable
This means that unreliable and unrealistic estimates can undermine the usefulness of the decision tree for decision making.
What does the usefulness depend on?
What market research has been carried out
What is happening in the external environment
Competition
Impact on customers
The extent the figures can be relied on
