Why Use Decision Tree Analysis?

Life is full of tough choices. Most of us muddle through them using best guesses and gut feelings. But have you ever wondered if there might be a more sophisticated way to make decisions? Many businesses, researchers, and organizations have asked the same question, and turned to decision tree analysis.

Decision trees for decision analysis, in PrecisionTreeDecision trees are quantitative diagrams with nodes and branches representing different possible decision paths and chance events. This helps you identify and calculate the value of all possible alternatives, so you can choose the best option with confidence. This technique applies to almost any industry and field; it can help oil companies determine optimal testing and drilling strategies, help medical researchers determine the best tests and procedures to maximize a patient's recovery, or help a law firm decide on the best litigation strategy in a legal dispute.

How does this tool work? Decision trees let you visually map out complex, multi-layered decisions in a sequential, organized manner. This helps you identify all possible alternatives and choose the best option. This formal structure represents decisions and chance events that are linked in sequence from left to right. Decisions, chance events, and end results are represented by nodes and connected by branches. The result is a tree structure with the "root" on the left and various payoffs on the right. Probabilities of events occurring and payoffs for events and decisions are added to each node in the tree. Palisade's  PrecisionTree software creates decision trees  and influence diagrams in Mircosoft Excel, allowing you to  identify all possible alternatives and choose the best option.

PrecisionTree is a part of Palisade's DecisionTools Suite, an integrated set of programs for risk analysis and decision making under uncertainty that runs in Microsoft Excel. The DecisionTools Suite includes @RISK for Monte Carlo simulation, PrecisionTree for decision trees, and TopRank for “what if” sensitivity analysis. In addition, the DecisionTools Suite comes with StatTools for statistical analysis and forecasting, NeuralTools for predictive neural networks, and Evolver and RISK Optimizer for optimization. All programs work together better than ever before, and all integrate completely with Microsoft Excel for ease of use and maximum flexibility.

See also: Some Uses of Decision Support Software

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