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WorksheetsDecision Trees
Total questions: 15
Worksheet time: 5mins
A decision tree is a _____ used to help managers make decisions.
scientific model
mathematical model
geographical model
super model
A decision tree uses _________ to calculate likely outcomes.
stakeholder information
facts and statistics
estimates and probabilities
shareholder data
A decision tree helps to decide whether the _____from a decision is worthwhile.
net gain
net present value
payback period
future value of cash
A decision tree starts with a ____ to be made and the options that can be taken.
dividend
decision
net present value assumption
payback period estimate
Don't forget that there is always an option to decide _____.
to choose the project that is not worthwhile
to add further options
to choose both options
to do nothing!
Net gain is calculated by _____ the expected value of each outcome and deducting the costs associated with the decision.
deducting
adding together
multiplying
dividing
BENEFITS OF USING DECISION TREES include:
Uses quantitative data only – ignores qualitative aspects of decisions
It is based on assumptions and estimates
Choices are set out in a logical way
Assignment of probabilities and expected values prone to bias
BENEFITS OF USING DECISION TREES include:
Decision-making technique doesn’t necessarily reduce the amount of risk
Uses quantitative data only – ignores qualitative aspects of decisions
Probabilities are just estimates – always prone to error
Potential options & choices are considered at the same time
BENEFITS OF USING DECISION TREES include:
Probabilities are just estimates – always prone to error
Use of probabilities enables the “risk” of the options to be addressed
Uses quantitative data only – ignores qualitative aspects of decisions
Assignment of probabilities and expected values prone to bias
BENEFITS OF USING DECISION TREES include:
Likely costs are considered as well as potential benefits
Probabilities are just estimates – always prone to error
Uses quantitative data only – ignores qualitative aspects of decisions
Assignment of probabilities and expected values prone to bias
BENEFITS OF USING DECISION TREES include:
Probabilities are just estimates – always prone to error
Assignment of probabilities and expected values prone to bias
Easy to understand & tangible results
Decision-making technique doesn’t necessarily reduce the amount of risk
DRAWBACKS OF USING DECISION TREES include:
Probabilities are just estimates – always prone to error
Choices are set out in a logical way
Potential options & choices are considered at the same time
Use of probabilities enables the “risk” of the options to be addressed
DRAWBACKS OF USING DECISION TREES include:
Likely costs are considered as well as potential benefits
Use of probabilities enables the “risk” of the options to be addressed
Uses quantitative data only – ignores qualitative aspects of decisions
Easy to understand & tangible results
DRAWBACKS OF USING DECISION TREES include:
Use of probabilities enables the “risk” of the options to be addressed
Potential options & choices are considered at the same time
Easy to understand & tangible results
Assignment of probabilities and expected values prone to bias
DRAWBACKS OF USING DECISION TREES include:
Likely costs are considered as well as potential benefits
Easy to understand & tangible results
Decision-making technique doesn’t necessarily reduce the amount of risk
It is a mathematical model used to help managers make decisions.
