What is a Decision Tree?

A Decision Tree is a Tool that helps people analyze the different Scenarios that could occur after making certain Decisions.

  • Sometimes, these decisions depend on other people or random events.

 

By analyzing the different resulting Scenarios, the Decision Tree can help people decide which option among several would be the best.

How to create a Decision Tree

Since any small and insignificant decision can result in completely different and unexpected situations, the key to develop a useful decision tree is to evaluate the correct Scenarios.

 

Among the Infinity of Possible Scenarios resulting from an election, you must analyze those that are:

  • Polarized.
  • Distinctive.
  • Predictible.

Polarized: Opposite Scenarios, clearly Distinguishable from each other.

  • Similar scenarios end up giving blurred and contradictory conclusions.

 

Distinctive: Scenarios that are Easy to Define and Identify.

  • If you can’t Identify a Scenario clearly, the analysis will be in vain.

 

Predictible: The Consequences of each Scenario must be Realistic.

  • Using Scenarios whose consequences are almost impossible to predict is sterile.

Decision Tree example.

 

Before looking at some examples, we have to clarify one important thing:

  • The difference between a Decision Tree and Decision Matrix.

And when to use each of these Tools.

Decision Tree vs Decision Matrix

These two tools can be used interchangeably in most situations.

However, they have small differences that make each of them unique.

 

Decision Matrix: It evaluates different options by assessing their characteristics.

  • It is used when the possible consequences of several options would be essentially similar.

 

Decision Tree: It evaluates different options analyzing the consequences of each one.

  • It is used when making a decision based on its possible consequences.

 

Informal Rule:

  • If you are thinking of maximizing your Results, you should use the Decision Matrix.
  • If you are concerned about the possible Consequences, use the Decision Tree.

Now is the time to see some practical examples.

 

We have followed some examples we used on our “Decision Matrix” Page.

  • Since both concepts are similar, we want you to understand the difference between each of them.

Decision Tree Examples

These are 4 examples of different situations where a Decision Tree can be of great help.

  • We have analyzed 2 everyday situations and 2 Business Cases.

 

Let’s begin:

Restaurant Menu - Decision Tree example

 

In this example we’ll imagine that you own your own Restaurant specialized in Ribs.

  • You are doing well but, you want to diversify your Menu.

 

You think that you could increase your customers if you prepared more dishes.

 

After studying the preferences of your customers, you hesitate between 2 options:

  • Hamburgers or Tacos.

 

Then, you decide to elaborate a Decision Tree, to analyze the implications of each option:

 

After developing the Decision Tree you realize that:

Tacos are not easy to master.

  • The cooking process is very different from what you’re used to.
    • Your Customers want authentic Tacos.

You would have no problem is preparing Hamburgers.

  • You can use your current Barbecues.
    • Also, the sauces and some condiments are common with your Ribs.

 

Your decision

 

You’ll introduce some Burgers in the Menu and, maybe Nachos; a popular Tex-Mex recipe you already know.

e-Commerce - Decision Tree example

 

In this example we’ll imagine that you own your own e-Commerce Business.

  • Your Site is specialized in t-Shirts.

 

You are doing well but, you’d like to grow your Business.

 

After looking at your different options (and your experience), you end up with 2 different options:

  • Make-Up and Handmade Jewelry.

 

Then, you decide to create a decision tree to analyze the possible scenarios:

 

After developing the Decision Tree you realize that:

It is difficult to succeed in the Handmade Jewelry market.

  • You don’t have the skills necessary.
    • Also, you would need a significant amount of money to buy and sell.

The Make-Up Market is very Polarized.

  • It is very difficult to sell your own handmade Products.
  • It is really easy to Buy & Sell Products from existing companies.

 

Your decision

 

You will Buy Make-Up products in batches and Sell them by Pieces.

Reforming your House - Decision Tree example

 

In this example, we’ll imagine that you and your wife want to reform your House.

The problem is:

  • Your wife would like to renew the appearance of the whole House.
  • As you are the one who cook, you want to Focus on the Kitchen.

 

This is not a TV show: Your Budget is $25.000. Not a dollar more.

 

Since this is an important decision with serious consequences, you decided to create a Decision Tree:

 

After developing the Decision Tree you realize that:

A complete House renovation is Extremely expensive.

  • It would cost $100,000. An amount of money you don’t have.

A partial home renovation is relatively affordable.

  • Changing the doors, painting the whole house, etc… would cost $20.000.

Your Budget could cover any Kitchen renovation.

  • Its price varies from $5.000 to $10.000.

 

Your decision

 

You two decide to develop a partial Home renovation and a Basic Kitchen Renovation.

Choosing a Video Game - Decision Tree example

 

In this example we’ll imagine that you have recently purchased the new Xbox.

 

The problem is: You don’t know what game to buy.

  • And, you want to choose wisely.

 

Since, depending on the game you choose you’ll spend more or less hours of your life, you created a Decision Tree:

 

After developing the Decision Tree you realize that:

On average, you spent more hours playing Adventure games.

  • However, that doesn’t necessarily mean that you enjoyed that games more.

The decision must take into account the time you have.

  • If you have a lot of work to do or are on vacation, etc.

 

Your decision

 

Since you have 2 busy months ahead of you, you decided to buy a “quick-to play” title. You’ll buy Halo.

  • After these 2 months, you’ll think about buying the new Elder Scroll game, which requieres many more hours of dedication.
    • This way you will enjoy it much more.

Summarizing

A Decision Tree is a Tool that helps people analyze the different Scenarios that could occur after making certain Decisions.

  • By analyzing the different resulting Scenarios, the Decision Tree help people decide which option would be the best.

 

The key to developing a useful decision tree is to evaluate the correct scenarios.

 

Among the Infinity of Possible Scenarios resulting from an election, you must analyze those that are:

  • Polarized: Opposite Scenarios, clearly Distinguishable from each other.
  • Distinctive: Scenarios that are Easy to Define and Identify.
  • Predictible: The Consequences of each Scenario must be Realistic.

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