1.0 Introduction

A decision tree is a method you can use to help make good choices, especially decisions that involve high costs and risks. Decision trees use a graphic approach to compare competing alternatives and find values for those alternatives by combining uncertainties, costs, and payoffs into specific numerical values.

If you are a project manager, business analyst, or a project decision-maker, this primer is for you. If you are interested in cognitive science, artificial intelligence, data mining, medical diagnosis, formal problem solving, or game theory, this primer provides an introduction to basic concepts of decision tree analysis.

1.1 Advantages of using decision trees

Decision trees offer advantages to other methods of analyzing alternatives. Decision trees are:
  • Graphic. You can represent decision alternatives, possible outcomes, and chance events schematically. The visual approach helps with comprehending complex decision sequences and dependencies.

  • Efficient. You can quickly express a complex decision problem clearly. You can easily modify a decision tree as new information becomes available. After a decision tree is set up you can use it to compare how changing input values affect the decision alternatives. Standard decision tree notation is easy to adopt.

  • Revealing. You can compare competing alternatives in terms of risk and probable value. The expected value (EV) term combines relative anticipated payoffs and uncertainties into a single numerical value. The EV reveals the overall merits of competing decision alternatives.

  • Complementary. You can use decision trees in conjunction with other project management tools. For example, project scheduling information can be evaluated by the decision tree method.

1.2 About this primer

This online primer offers an introduction to basic decision tree analysis. After an hour, most users will be able to understand and apply decision tree analysis to solve the examples in this primer. After two hours, including time spent on practicing the exercises, most users will be able to apply decision tree techniques to novel decision problems.

You can readily construct and analyze simple decision trees such as those found in this primer with pen, paper, and a calculator. However, a software spreadsheet such as Microsoft Excel can dramatically ease setting up and modifying decision trees. A number of other software applications are also available. These range from low-cost Microsoft Excel plug-ins to more expensive dedicated applications. For the purposes of this primer, a pen, paper, and calculator are sufficient.

1.3 To use this primer

You can use this primer in several ways. If you prefer to get started immediately with drawing and using decision tree notation, then begin with the Decision Scenario, an exercise that puts you in the role of using a decision tree in step-by-step fashion. If you are more comfortable learning by first seeing how a process works, then start with Basic Concepts. Whichever way you begin, make sure to review both of these sections. The Glossary defines highlighted terms. After you review the concepts and use the scenario exercise, you can find external references in More to Explore.

Icons indicate items of special interest:
Example icon Example
Exercise icon Exercise
Note icon Note
Tip icon Tip

Please let me know how this online primer works for you. You can send questions and comments through the Feedback form.