Operations and Supply Chain Management
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DesionMakingtools.pptxDecision Trees
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1
Decision Trees
Information in decision tables can be displayed as decision trees
A decision tree is
a graphic display of the decision process that indicates
decision alternatives,
states of nature and
their respective probabilities, and
payoffs for each combination of decision alternative and state of nature
Appropriate for showing sequential decisions
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Decision Trees
Define the problem
Structure or draw the decision tree
Assign probabilities to the states of nature
Estimate payoffs for each possible combination of
decision alternatives and states of nature
Solve the problem by working backward through the tree computing the E M V for each state-of-nature node
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3
Decision Tree Example
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Complex Decision Tree Example
Two decisions to make
The 2nd decision dependent on the outcome of the 1st decision.
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Example
Given favorable survey results
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Given favorable survey results
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Compute the expected value of the market survey
If the market survey is not conducted
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The expected monetary value of not conducting the survey is
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9
Summary
The Decision Process in Operations
Fundamentals of Decision Making
Decision Tables
Types of Decision-Making Environments
Decision Trees
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Copyright © 2020, 2017, 2014 Pearson Education, Inc. All Rights Reserved
Copyright © 2020, 2017, 2014 Pearson Education, Inc. All Rights Reserved
Copyright © 2020, 2017, 2014 Pearson Education, Inc. All Rights Reserved
Copyright © 2020, 2017, 2014 Pearson Education, Inc. All Rights Reserved
Copyright © 2020, 2017, 2014 Pearson Education, Inc. All Rights Reserved
Copyright © 2020, 2017, 2014 Pearson Education, Inc. All Rights Reserved
Copyright © 2020, 2017, 2014 Pearson Education, Inc. All Rights Reserved
Copyright © 2020, 2017, 2014 Pearson Education, Inc. All Rights Reserved
Copyright © 2020, 2017, 2014 Pearson Education, Inc. All Rights Reserved
Copyright © 2020, 2017, 2014 Pearson Education, Inc. All Rights Reserved
Copyright © 2020, 2017, 2014 Pearson Education, Inc. All Rights Reserved
(a) Under conditions of risk, the company should choose batch processing, with an expectation of $1,000,000, which is twice as high as the next best choice.
(b) EVPI is $170,000.
Copyright © 2020, 2017, 2014 Pearson Education, Inc. All Rights Reserved
Copyright © 2020, 2017, 2014 Pearson Education, Inc. All Rights Reserved
Copyright © 2020, 2017, 2014 Pearson Education, Inc. All Rights Reserved
Copyright © 2020, 2017, 2014 Pearson Education, Inc. All Rights Reserved
Copyright © 2020, 2017, 2014 Pearson Education, Inc. All Rights Reserved
Copyright © 2020, 2017, 2014 Pearson Education, Inc. All Rights Reserved
