When are decision trees relevant to use?
A decision tree helps you to make a decision about some kind of process. For example, you might want to choose between manufacturing item A or item B, or investing in choice 1, choice 2, or choice 3.
Companies are often faced with a wide variety of decisions throughout the year. These can be linked to investments in different parts of the company’s value chain, the strategic opportunities and threats that arise over time – or they can be linked to change processes. Decision processes related to negotiations, or personal dilemmas for that matter, can also benefit from the use of decision trees.
Decision trees have proven to help companies to confidently rank projects and strategies. And ultimately, to make faster and better decisions.
Scoring relevant dimensions
To clarify the actual need to build a decision trees for a certain problem situation, it may be useful to consider the following dimensions:
UNIQUENESS
Degree of issues that have the character of being unique.
DEPENDENCIES
Degree of decisions that are connected over time and can not be considered in isolation.
UNCERTAINTY
Degree of uncertainty in the company’s predictions about the future.
COMPLEXITY
Degree of complexity, specialisation and interaction between different subject areas.
In its simplest form, each dimension is assessed on a scale from 0 – 100% in relation to the extent to which each individual dimension corresponds to the description of your decision problem. A high score of one or more dimensions indicates the potential for significant value creation through the use of decision trees.