<DECISION TREES>

A DECISION TREE is a technique that allows a manager to assess the AVERAGE EXPECTED VALUE of a set of business options available and determine the chances of them occurring. To create a decision tree the following bits of information are needed:

• All the OPTIONS open

• The different possible OUTCOMES resulting from these options

• The PROBABILITY of these outcomes occurring

• The economic RETURNS from these outcomes.

--PAST PAPER EXAMPLE--

--Sassy--

Sassy, a partnership between fashion designers, produces clothes for teenagers. Capacity utilization is very high. The partners are considering some strategic changes. After conducting research, they presented THREE OPTIONS and outlined the costs and expected revenue. They also predicted that the economy would either improve or stay the same. The probability of the economy staying the same is 0.3. The options, costs and expected revenue are given below:

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