Taking decisions as a business owner is one of the most challenging and complex parts of running a corporate business. Information and data aren’t always accurate, and a good choice is not always clear.
Identifying the roots of your company that impact its success and survival are essential elements. Luckily, the decision tree is a strategic business tool that can help you quickly comprehend possible outcomes and devise a practical solution accordingly. This article explores a decision tree, why a business should use it, and how it can help a business in decision-making.
What Is A “Decision Tree?’
Decision trees are strategic managerial tools used to represent different decision alternatives and their outcomes in a flowchart graph. The flowchart symbolizes a tree where each branch is a decision, and the leaves are the outcomes.
A decision tree uses a conceptual approach where several decisions are present to support different situations. For example, how the product pricing change impacts the revenue. As a business entrepreneur, leveraging a free decision tree maker can help you examine the effect of a particular change throughout different areas of your business.
The primary goal of a decision tree is to imitate the human thinking pattern, making it easy for them to understand. Here are some key points to better understand what a “decision tree” entails;
- The roots in a decision tree represent a business’s strategic goal and future objective
- The trunk symbolizes the entire plan of action and knowledge a business understands
- Branches stand for different decisions of a business
- Twigs refer to the outside business investors, suppliers, etc.
- Leaves coming off from each branch represents a possible outcome
Why Use A Decision tree?
The decision tree gets its name by illustrating different decisions and possible outcomes. One of the major benefits of using a decision tree is its ease of understanding and explaining what can happen under different decision-making scenarios.
Decision trees deliver countless benefits and have practical uses in business settings, including project management, business development, resource allocation, employee distribution, finance management, etc. Here are some reasons why a business should use a decision tree in it’s crucial to small operation;
Easy To Use
Decision Trees are pretty easy to understand and interpret. The decision tree structure follows a logical way of human thought and decision-making. As a result, it is easier for most people to draw and understand them.
Identifying Business Problems And Outcomes
Another great benefit of using a decision tree is streamlining the complex process of identifying business problems and their solutions. Most often, addressing different issues in business is a time-consuming task. With a decision tree, you can structure each business concern and find its solution in a simplified manner.
Simplified Customer Data
Data mining is among the most time-consuming and complicated processes of a business. It is an important step in increasing your business revenue. However, it should be accurate. Decision trees can make this overwhelming data mining process more manageable by organizing the entire process in a flowchart and understandable format.
The decision tree’s roots, branches, and nodes can effectively structure the customer data, helping you improve customer relationships.
A decision tree creates a thorough analysis of the decisions within each branch. While on the other hand, the nodes coming from the branch represent the different outcomes and impacts. You can get a deep and comprehensive analysis of any business process through a decision tree.
How To Make A Decision Tree
A decision tree comprises two crucial components:
- Decision Branch – A point where decisions are made
- Leaf node – A point where the outcome of the said decision is listed
The tree starts from the first decision branch, typically called the “root node.” The root node represents the entire body (goal) of the diagram.
The root node is further divided into two or more similar sets (decision branches) where different decisions based on different scenarios are listed.
The decision branches represent the features of the root node (goal). Each decision branch stands for different rules, objectives, and problems. Lastly, leaf nodes coming from decision branches signify their outcome.
Understanding The Decision Tree
Here is a practical example to better understand the decision tree’s purpose.
Consider that you have secured a job for a content creator position, and now you are considering whether to accept or refuse it.
To solve this problem, you can construct a decision tree. Here is how:
Step # 01
Draw a decision tree by making the root node. The root node (goal) is the salary range in this case. Proceed further only if the salary is within your range.
Step # 02
In the decision branch, write the distance between your home and office, different means of commute, and their rules related to the operating mode, etc.
Step # 03
The outcome in each decision branch will help you comprehend if you should accept or reject this offer. For instance, if one of the leaf nodes highlights the possibility of working from home, you can take this offer, and so on.
Decision trees are the logical and easy technique to find an ideal solution to complex problems. Most businesses leverage decision trees in their operations to make informed decisions before taking a big step. As you start your journey in the competitive market, you’re most likely to experience a situation where using this technique will be required.