How to Make a Decision Tree and Why It Would Be Useful

by OverHeadWatch Team | Jan 23, 2018 | Blog | 0 comments

Making decisions is not always easy, especially if you’re struggling with a complex matter which requires a lot of thought. One of the best solutions in such cases is a decision tree, which can help you choose the best option. Here you can find out how to make a decision tree, what it is, and what it’s good for.

What is a decision tree?

A decision tree is a diagram which contains all the solutions and outcomes which would result after a series of choices. It allows people to compare these outcomes in terms of costs and advantages, and can be used either in a company or by an individual.

On the basis of a decision tree, the participants to the debate can either start pondering the options or discover the best choice from a mathematical point of view. Therefore, this diagram is some kind of algorithm which contains thorough calculations.

How does a decision tree look like?

At the beginning, the decision tree has only a single node. Then, it splits into branches which represent all the possible outcomes. The outcomes produce other nodes, which further branch into all sorts of outcomes and options. In the end, the diagram resembles a tree.

The nodes are of three types. Decision nodes appear as squares, and mark a decision which should be made. Each decision node branches into possible decision options. These lead to chance nodes, depicted as circles. Depending on the options, these nodes show their degrees of success. The tree gets closed by end nodes, depicted as a triangle displayed horizontally. These nodes show the final result of each option.

How to make a decision tree

There are many ways to draw a decision tree. You can pick the traditional way, and do everything manually on a paper. However, if you want the statistics to be more advanced, you can either use a special software or do it in programs like Microsoft Excel. Either way, you have to follow the same steps.

Select the decision(s)

The decision tree must start with the decision. First of all, choose the one you want to evaluate, and mark it with a square. If you need to make more decisions, draw squares for each of them. Then, draw branches which represent each option you have. Write the name of the option on the branches.

Develop the tree with chance and further decision nodes

The next step is to evaluate the outcome of each possibility. To do this, draw circles (chance nodes) at the end of each branch. If these possibilities require new decisions, draw more squares and add new options.

If you want to calculate the chances from a mathematical point of view, add figures. Each option should be followed by a percentage of success, the costs it brings, or whatever suits the situation.

Complex decision tree on a cultural matter

Keep adding nodes until you reach the end

Try to rule out all the possibilities you have. This means you can expand each node and option until there’s nothing more to decide. At this point, you have reached the end node, so draw the horizontal triangle.

You should do this with each branch, so that you can close the decision tree. Each end node should be followed by a value of some sort. It can either be a percentage, a sum of money, or an answer. Based on these values, you are ready to start pondering each final outcome, and discuss the better choices and decisions you can make.

Where can you use a decision tree?

These diagrams are more common in companies when evaluating financial decisions, but a person can draw one any time they cannot decide what to choose in a matter. However, they are most common in the field of economy. People can use them to decide on future investments, loan policy, or if a certain product is profitable or not.

It can either predict the outcome of each option available, or describe a situation and its evolution. In both cases, you can construct the decision tree by following the same steps. Each step should appear in chronological order, and then offer a visual representation of actions and their causes.

Since decision trees can be predictive, they can be of use in machine learning as well. These diagrams can serve as models for automated systems, as the systems can pick up decision-making skills based on the mechanisms behind the trees.

Advantages of decision trees

Learning how to make a decision tree comes with a lot of benefits, especially in the business world. First of all, these diagrams are pretty easy to understand. If you are trying to convince your associates to be on your side, this is the best way to show them why your option is profitable.

Thanks to the visual support of decision trees, this is the easiest way to analyze the consequences of actions. If you have a hard time understanding what it means to make a certain choice, or you simply can’t decide upon a matter, this is the best solution.

You don’t need a lot of data on the matters to put them in a decision tree. You simply need to know the options, and they’re good to go in the diagram. Also, you need no training to build one. Even if you draw one by hand or use a special software, the action is easy and quick.

If you have already drawn a decision tree and some new possibilities arise, you can easily add them without disrupting the current diagram. In the end, you will only have more options to compare. However, once the things get a bit too difficult, you can easily incorporate the tree into other decision-making tools.

Summing up

By learning how to make a decision tree, you can easily evaluate all the choices you have and their outcomes. Some problems require a lot of attention before deciding what to do with them, and this type of diagram helps you calculate the risks, expenses, and advantages of each alternative. At the end, you can be sure you will find the best decision to make.