Complex decisions require well organized and structured approaches.
A good decision making structure will help you outline your potential options and evaluate those options by comparing them on critical and important variables like risk, cost, profit, customer value, timing, resource requirements, etc. Generally speaking making decision is a process of making a tradeoff between risks and rewards.
The decision tree analysis offers you the well organized and structured approach when facing a complex situation and you want to make sure you make the right decision.
What is a decision tree analysis?
Decision tree is an effective tool which can help you evaluate your potential alternatives. It is a decision making tool that uses a visual tree to represent your decision making process and outline the alternative courses of action available to you. Depending on your goal and objectives you can use various decision variables and outcomes in your decision tree such as cost, risk and benefits. In addition by using decision tree you can also add probabilities for each of your alternative outcomes.
By developing such an outline your process will improve drastically because it will be easier for you to compare and evaluate different scenarios. Decision trees are easy to use and very effective at the same time.
Every decision tree will include three kinds of nodes – a decision node which is typically represented by square, a chance node which is represented by circle and an end node which is generally a triangle.
You can use different shapes on your visual tree model however the three types of shapes described above are generally accepted standard so if you need to share your model with others you can stick with them to avoid any misunderstandings.
You can develop your decision tree by using any flowchart software and there are many of them available today, both free and paid alternatives.
However when making a decision tree analysis make sure you focus on the analysis itself and not on how fancy your decision tree diagram is. The process of analysis is the art of breaking the whole into its parts. So your job here is to analyze and identify all parts or drivers in your decision making process and include them in your analysis.
By identifying its parts a complex situation can be analyzed by looking at more simple parts and analyze them one by one before you develop the big picture. Effective decision making process means having a clear understanding of your situation and circumstances before you start evaluating various alternatives and scenarios.
In business most decisions are made based on judgment driven by gut feeling and experience – what worked in the past is something that everyone can trust and go with. However the decision tree analysis approach can always be of help because at least you can identify the high risk scenarios and make sure you avoid decisions which have high risk and low probability of occurrence.
Another important benefit is that when using models especially visual models like this one your creativity is more efficient. You can easily identify new alternatives, solutions and scenarios and come up with new ideas which are hard to get when you don’t use any thinking and decision making model.
As a conclusion, the purpose of any decision making analysis is to improve the insight into the issues and help you make better decisions by improving your creativity and structuring your scenarios.