A Guide To The Advantages Of Decision Tree


Every business has to take some sort of decision daily involving lots of uncertainty. This stresses the business owners as they are constantly worrying about the outcome of the decision taken and how it will impact the organization as a whole. There is always going to be some uncertainty involved with the decision taken as no one can never predict the outcome accurately. But by adopting an effective decision-making tool, the business can manage to eliminate the uncertainty to a large extent. An effective managerial decision-making tool provides the business with all the possible alternatives and how they will impact the business and thus based on which the businesses make the decision. One such effective tool available to fulfil such purpose is decision tree analysis which has become quite popular.

Decision tree software solutions are highly efficient and effective in dealing with the ambiguous situation and thus help the management in arriving at the right and quality decision for the organization. But what exactly is a decision tree? A decision tree is a tool in the hand of the management that represents all alternatives for the problems along with it its outcomes in the form of a tree that has branches and leaves. The branch of the decision tree signifies a decision alternative with its cost and the probability of its occurrence. The leaves of the decision tree signify the outcome of the alternatives; they are also known as terminal nodes. There are also various other terminologies related to the decision tree that one must be aware of so that there is confusion in understanding the decision tree. These include the root node which is the starting point of the decision tree. It is with the root node that all other nodes are created; splitting means dividing the nodes into various sub-nodes; pruning signifies cutting off the sub-node that is irrelevant to the decision tree. These terms are unnecessary for clearly understanding how the decision tree operates.

The decision tree is high in demand for solving all types of managerial problems from simple to complex. There are various reasons for management to turn to a decision tree for arriving at an effective solution for the organization. They also enable the management to know about the risk and benefits associated with each possible outcome so that the right decision is taken by the management. There are various benefits offered by the use of the decision tree software platform. These are mentioned as below:

  • Decision trees are easy to read and can be easily interpreted by a non – technical person. With just a few efforts one can easily understand what is being conveyed by the decision tree and thus enable the management to arrive at a quick and right decision. The decision tree does not involve many complex and complicated procedures as compared to other algorithms techniques. The decision tree involves graphical representation which allows anyone without any statistical knowledge to interpret the result. The data used in the decision tree can be effectively used to know about various alternatives along with the probability of outcome so that expected monetary value can be calculated to provide the base for decision.
  • Decision trees are also easy to prepare in comparison with other decision techniques. They do not involve complicated formulas and approaches in their preparation. But one needs to have information so that variables can be easily created. On whole, this technique is much preferred over the other method as no complex calculations are computed. This technique has another added advantage as it can be easily integrated with other techniques for a more effective outcome.
  • A decision tree assigns specific values to different options and variables. It helps the management in cost-benefit analysis of each outcome so that only the relevant options are further considered and thus eliminates the unnecessary and irrelevant data. This helps in reducing the confusion of management in arriving at the correct and accurate decision. It takes into consideration the financial constraint, so the all the required and valid information is available to the management dealing with the problem.
  • This technique is also highly versatile as it enables management in dealing with various business problems. It has the potential to overcome various problems that range from project decisions to inventory decisions.
  • Decision tree software solutionenables the management to come up with all the possible alternative options that can be used to solve the problem they are dealing with. Through the use of a decision tree, the management can easily choose among the best and worst-case scenarios.
  • Decision trees are very effective and efficient in dealing with all types of data whether it is parametric or non-parametric data. They can solve any kind of problem with so much ease.
  • Another important advantage of decision tree analysis that after the variables have been developed, the data cleaning requirement is reduced. There will be the least effect on the decision tree because of any missing values. Thus, this method is more convenient.

These are some of the benefits that one can avail by implementing of decision tree software platform. Decision tree analysis is surely a blessing for the businesses as it can effectively manage any situation with flexibility and ease. There are various applications of the decision tree in business. These are mentioned as below:

  • Growth Opportunities: A decision tree can be used by the business to access the growth opportunity based on past data. The historical data of business related to sales and another important area can be utilized under the decision tree to come up with new strategic changes that will have a positive impact on the operations of the business and thus help in its growth development.
  • Generating Leads: By using demographic data in the decision tree, the businesses can find new clients. They result in streamlining of business marketing budget and thus can make an informed decision.
  • Other applications: The decision tree analysis can also be put to use for various other fields. It can also be used to calculate the creditworthiness of the customer and thus help in deciding whether to grant the loan or not. It can also be used to decide upon different business start-ups as well.

Hence, we can conclude that there is multiple application of decision tree analysis and businesses can benefit from it a lot.

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