Using the Decision Tree to help with decision making

Posted on 14 Jul 2022

The Business Decision Tree

Decisions are made by business owners every day but how do you work out some of the more complex matters? One option is to use a Decision Tree which helps to evaluate your options. A decision tree may help you solve problems by working through possible responses in a scenario and is an excellent tool for helping you choose between several courses of action. This can be particularly helpful if you are faced with financial difficulty as this process can help you to see specific situations more clearly, such as identifying alternatives and then establishing the benefit of each one. A decision tree can help by assisting with making those tricky business decisions such as:

• Downsizing
• Outsourcing critical business functions
• Expanding into new markets
• Changing pricing models
• Relocating
• Selling the business
• Changing the product offering
• Expanding research and development

Going through this planning process can help a business decide which adjustments to make to continue with the business as usual or change how the business operates. This article takes you through the benefits of the Decision Tree process and highlights scenarios in which this may be helpful.? You can also download a decision tree PowerPoint template here to get you going. A simple decision tree consists of 4 parts: Decisions, Alternatives, Uncertainties and Values/Payoffs. Like the name suggests, a decision tree will have roots, leaves and branches (root nodes, leaf nodes, branches).? The root node is the ultimate decision you're trying to make. Each leaf node is a refining question and branches connect everything to show the flow from questions to answers. On a really basic level, here is an easy outline to start your creation of a decision tree. How to make a decision tree

1. Begin with the decision

For instance, if you're deciding whether to outsource your payroll or accounts function or make this an in-house job, your root node would say 'How should we implement payroll?'

2. List your options

List your options using connectors and connect them to the root node with branches. Your connectors would say 'In-house' or 'Outsource'.

3. Put it to the test

Apply alternatives or uncertainties to each option. In this example, the questions you might have include:

• Will we have direct oversight?
• How much training will be required?
• Will it improve our daily business functions?

4. List Conclusions

At the end of each stream of questions, write the ultimate conclusion. You may also like to show risk in your conclusions of various degrees of probability (high, medium, low).

Decision tree tips:

• The bulk of your decision tree will be leaf nodes. Each branch should have a leaf node.
• Don't be afraid to add branches if you think of more outcomes that should be considered.
• You don't have to go it alone. This can be a group project and should involve stakeholders.
• Make sure to apply the same test to each outcome. If you ask, for instance, 'will it be easy to implement one option', you must ask the same question of the other options.

                    Decision Tree example courtesy of Lucidspark.