How to Use Decision Trees to Make Better Business Decisions
Whether you’re a big firm or a new startup, your success will depend on team members making the right choices and decisions all the time.
Decisions can vary and make or break brands. Sometimes, decision-making is about deciding between big ideas, such as where to build company headquarters. Other times, the stakes are smaller, like which tool to buy for social media.
Whether your decisions are big or small, decision tree analysis can help you explore options and achieve the solution you desire.
This article will walk you through how using decision trees can benefit you and how you can make some for your business profitable and invoice your customers in second by invoice format.
How to Create Decision Trees?
Listed below are the four steps to creating and using a decision tree diagram template:
Start with a Decision
In a “root node” box, enter the decisions you want to make. Let’s say you’re considering whether to make an in-house customer service department or outsource it. If that’s the case, the root node could be: ‘how to deploy customer support and service?’
Utilize “connectors” to list options and attach them to “root node” using “branches”. Considering the above example, the connectors can be “outsourced” or made “in-house”.
Put It to the Test
Apply a similar test to all options. For instance, when using a “leaf node” connected to “branches,” you may ask, “is it cost-effective?”
Here are a bunch of other questions to ask:
- How much practice and training does it need?
- Will it increase customer satisfaction?
- How much direct oversight do we have?
Make sure to write conclusions at the end-point of every question. You can also demonstrate risks in decisions by displaying low, medium, or high probability.
In What Ways Can Decision Trees Be Used for Business Decisions?
The good news is that the decision-making process doesn’t have to be manual; using a decision tree template makes the process a whole lot easier.
Once you have a running template, decision trees can help you with the following:
Explore Alternative Options
A decision tree lets you find possible alternative actions based on your desired outcome.
For instance, you want to explore if it would be a good idea to develop a new line of products or continue with the same existing products. In this case, your decision tree could have two straight lines leading from the main trunk, which are further divided into the pros and cons of each branch (depicting the two options), representing the decision to proceed with new products or not.
Get Insights Into Events
Any occurrence that is outside your control and happens as a result of your actions is an event.
Continuing the example above, the decision to develop a new product line could result in a runaway success, or you could have failed products at your hand. These two possibilities could be depicted by two further straight lines emerging from the branches we drew earlier.
See All Possible Outcomes
The outcomes are the results of the decision you make, built on the probability of the occurrence of a particular event.
For example, you might have to invest $1 million to develop a new product line if you do decide to go that route. Your probability of generating profits is nearly 75%.
So you have a 75% chance of recovering more than your investment and a 25% chance of losing out on new products. But there’s also a third option, i.e., a 100% chance of not making any additional profits if you give up the idea of a new lineup.
Despite limitations, decision tree analysis is a tool you require to make crucial decisions. Try it if you manage a team, benefit from good visual representation, or are struggling with uncertainty and indecision.
You’ll feel more confident knowing you have weighed various options carefully and made a decision backed by reliable data.
So, use decision tree creators to help you find the perfect option among several alternatives. The decision tree brainstorming methods also work very well as a documented record of the inputs available to you at the time of decision making, so you can revisit your decision trees later and adjust the results as and when new info comes in.