Management Glossary

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decision tree
A diagram that maps all possible options and outcomes under consideration. Following a branch of the tree shows the possible further options that are still available after making a choice of one of the options illustrated at a point where the tree splits into two or more branches. For example, the decision at one split may be to buy a piece of equipment or not. After choosing to make the purchase, other options along that branch may include running one, two or three shifts. If you choose not to buy the equipment, the options along the alternative branch may include whether or not to put the funds into another investment.

The branch splits may not all be choices but, rather, possible outcomes that cannot be predicted in advance. For example, at one split one branch may show the options and further outcomes of a 20% loss from an investment, another branch a breakeven on the investment, and a third a 20% profit.

A decision tree can help clarify the possible options and outcomes of a complex decision and, thus, improve the decision-making process.
Contributed by: ManagerWise Staff

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