How to Create a Decision Tree | Decision Making Process Analysis

Summary

This video introduces decision trees, a tool used by decision-makers to visualize actions, processes, and probabilities. It highlights their flexibility in communicating complex ideas without emotional bias, focusing on choices, risks, and gains. The video explains the key elements of decision trees—root nodes, branches, leaf nodes, and symbols used to represent decisions and outcomes. A step-by-step guide shows how to create a decision tree, using an example of selecting technology for mobile phone production. Finally, the video demonstrates how to analyze and make decisions based on calculated outcomes and probabilities.

Takeaways

• 😀 A decision tree is a diagram used by decision-makers to visualize actions, processes, or statistical probabilities.
• 😀 Decision trees are flexible tools that help communicate complex processes and focus on data and probabilities rather than emotions or bias.
• 😀 They help clarify choices, risks, objectives, and gains, ensuring informed decision-making before investing resources.
• 😀 A decision tree typically consists of three main elements: the root node, branches, and leaf nodes.
• 😀 The root node represents the ultimate objective or decision you are trying to make.
• 😀 Branches stem from the root node and represent different options or courses of action available for a decision.
• 😀 Leaf nodes can be square (representing another decision) or circular (representing chance events or unknown outcomes).
• 😀 Decision tree symbols include: decision nodes (squares), chance nodes (circles), end nodes (triangles), alternative branches, and rejected alternatives.
• 😀 Creating a decision tree in EdrawMax involves choosing a specific decision, adding nodes for each option, and defining outcomes with probability percentages.
• 😀 After creating the tree, analyze it by multiplying outcomes with their probabilities and summing them to compare decision paths.
• 😀 EdrawMax allows you to visually enhance the decision tree by adding color, adjusting the layout, and viewing it in presentation mode.

Q & A

What is a decision tree?

A decision tree is a diagram used by decision makers to determine the action, process, or display statistical probability. It helps visualize different courses of action and their potential outcomes.

Why should we use a decision tree?

Decision trees are flexible, effectively communicate complex processes, focus on data and probability instead of emotions and biases, and clarify choices, risks, objectives, and gains. They also help flesh out ideas fully before committing time and resources.

What are the three basic elements of a decision tree?

The three basic elements of a decision tree are the root node, which represents the ultimate objective or decision; branches, which represent different options or courses of action; and leaf nodes, which can either be decision nodes (square) or chance nodes (circle).

What does a root node represent in a decision tree?

The root node represents the top-level decision or the ultimate objective you're trying to achieve in a decision tree.

What is the difference between square leaf nodes and circle leaf nodes?

Square leaf nodes indicate a decision that needs to be made, while circle leaf nodes indicate a chance event or an uncertain outcome.

What are the different symbols used in a decision tree?

The main symbols in a decision tree include: a decision node (square) for a decision to be made, a chance node (circle) for uncertain outcomes, an end node (triangle) for the final result, an alternative branch for possible outcomes or actions, and a rejected alternative for unselected options.

How do you start creating a decision tree in EdrawMax?

To create a decision tree in EdrawMax, click on 'New', go to 'Business', select 'Project Management', and choose 'Decision Tree'. You will then start by defining a specific decision, such as choosing between different technologies.

What should be done after adding the decision symbols in EdrawMax?

After adding the decision symbols, you should draw the branches from the decision nodes to represent different outcomes, like high or low profit, and include relevant percentages to display the likelihood of each outcome.

How do you analyze a decision tree?

To analyze a decision tree, multiply the value of the results by their respective probabilities, then sum up the total value of each node, moving from right to left across the diagram, to make a final decision based on the comparison.

What does the final decision depend on when analyzing the decision tree?

The final decision is based on which option has the higher total value after multiplying the results by their probabilities and summing them up. In the example, technology A with a total of $320,000 is the preferred choice over technology B with $255,000.