Decision trees are tools used by people to help them make confident decisions. It helps them layout several alternatives in a tree-like format. They can see most, if not all, the decisions available and can even set a rating on each choice.
Decision Trees Explained
The concept of a decision tree is an extension of a mind map. A mind map lets you create ideas and connections to those ideas. The decision tree is much like this concept except for a decision tree there is a score added to the branches of the tree. These scores often represent probabilities.
For example, if you have three choices, you may assign two branches with 40% probabilities, and the third branch would receive a 20% probability. The total of the branches need to add up to 100%. However, it is your decision tree, so you are free to use whatever allocations you like if any. If your system makes sense to you, then it is correct.
Economic Impact
With all decisions there is an associated amount of cost or investment. Some project managers use decision trees to determine the costs of projects. When they assign probabilities to branches, they’ll multiply the total budget by that probability. For instance, if a branch has a probability of 35% and the total budget is $100,000, the branch will be estimated to cost $35,000 (35% x 100,000).
Decision trees don’t have to be this intricate to be useful. You can use them to list out the alternatives for a decision and end your efforts there. You can also choose to update the percentage of completion for the path you select. Again, there are no right answers when using a decision tree for your purposes.
When others rely on your decision tree, and you are formally calling it a decision tree, you may need to follow the protocol of assigning probabilities and figuring out the percentage cost. However, if the group agrees to other conventions, then again, that is the right answer for the group. A decision tree is simply a way to convey information to yourself or a team, etc.
Decision trees will have a certain amount of subjectivity associated with them. In most cases, coming up with probabilities is quite subjective. It’s only through experience you’ll be able to refine the probabilities. If the project you are working on is a one-time deal, you won’t get the benefit of refining those probabilities and will have to start over with a new set of subjective probabilities on the next project. However, some branches may carry over to the new project, and you’ll have a better feel for what to assign to those.
Decisions can be difficult to make, using a tool like a decision tree can help ‘uncomplicate’ the process. As an entrepreneur, your team may only be you; but laying out your big decisions in this format can help you untangle your thoughts and ideas.
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