PrecisionTree helps address complex, sequential decisions by visually mapping out, organizing, and analyzing decisions using decision trees – right in Microsoft Excel. Decision trees are quantitative diagrams with nodes and branches representing different possible decision paths and chance events.
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What is a Decision Tree?
A decision tree is a diagram used by decision-makers to determine the action process or display statistical probability. It provides a practical and straightforward way for people to understand the potential choices of decision-making and the range of possible outcomes based on a series of problems. Decision trees usually start with a single node and then decompose into additional nodes to show more possibilities (such as choosing the two sides of a coin). The farthest branch on the tree represents the final result. Decision-makers eventually weigh each action plan against the risks to make the final choice. Moreover, a tree can be created longer or shorter in length as needed.
Decision Tree Key Symbols
Understanding decision tree symbols will help you read a decision tree diagram easily, you need to pay attention to the following nodes and symbols:
What are the Advantages and Drawbacks of Decision Tree?
The decision tree model is quite useful, mainly because of the following points:
- It is effortless to understand for all fields of users based on an excellent visual presentation.
- Building a decision tree requires only a small amount of data preparation, and the model does not require standardization of data.
- Both qualitative and quantitative data can be processed with the model.
- Large amounts of data can be processed in a specific period when using a decision tree.
- It can be easily used with other decision-making tools.
Although the model has many benefits to decision-makers, you should consider the following weak points:
With the increase of branches, decision trees may contain too much useless data. Therefore, users need to adjust the depth of the decision tree by setting the maximum amount of nodes or integrating different outcomes.
- Decision tree models may be unstable, which means small adjustments in a data set may lead to considerable changes in the final results.
Decision Tree Examples & Empirical Applications
Imagine that you want to try a new mind mapping software for your daily use. There are two options for you: to buy a paid software or download free, software. For the paid pathway, you can choose either software brand 1 or 2, in full payment or monthly payment with corresponding possibilities (70% or 30% in our example here). However, if you want to save money, you may choose to use the existing software, or use your friends' paid software (here either David's or Jake's). If David is not busy, then you may have more chances (here is 75%) to use his software. Feel free to click the image to see more and download the original file to expand it based on your own needs.
Decision tree model has been used especially in the following categories:
Finance and Business Management
The model is taught to business school and Economics students. Individuals or organizations can also evaluate costs, probabilities and benefits by drawing decision trees. Moreover, when a bank provides a loan to clients, it evaluates security through a series of questions based on a decision tree diagram including personal income, working life, credit card records and so on.
Deep learning/Machine learning/Programming
Decision trees can also be used to build automatic prediction models to mine data and evaluate multiple output results. This method is called decision tree learning. In this case, nodes represent data rather than decisions. Sometimes the predicted variables are real numbers, such as prices.
Bioinformatics
A decision tree can help aggregate different types of genetic data for the study of the interaction and sequence similarity between genes. One real-life example is that cancer researchers classify diseases into different types by observing patient data to prevent diseases. In this case, a decision tree is more like a simple and useful classification tool.
More Free Decision Tree Diagram Templates
Free download templates are available below to help your team to create a better decision tree diagram. Click on any of their names to see more details.
| Simple Template | Industry Application Template | Friends Visiting Decision Example |
How to Create and Analyze Your Decision Tree Diagram?
Free Decision Tree Software Excel
You can choose either create a decision tree diagram by hand or using an easy diagram software. No matter which way to choose, you should follow these steps 1,2 and 3 below. Here we are using an easy example to show you the overall process. You can try yourself for more complex cases based on this simple example here.
Step 1: Make Your Initial Decision
First,you must start with a specific decision for your diagram, for example, choose to use technology A or B for your new mobile phone production. Once decided, create a small square at the left side of your drawing canvas. Next, draw a number of lines from the square to the right side with labels for more possible outcomes. In our example here, you can add the outcome of high or low profit.
Step 2: Add Chance/Decision Nodes
Continuously expand your decision tree by inserting more decision nodes or chance nodes until every line reaches an endpoint (I.e. no more choices needed to be considered). Leave the space blank if the problem has been solved and add triangles to signify endpoints. Include the possibility of each result if you want to analyze options numerically.
In our example above, the possibility of using technology A with a high profit outcome is 60%, and %40 for the low profit result. The possibility of using technology B with a high profit outcome is 70%, and 30% for the low profit result. You should also predict the most possible outcome for each of the endpoints, for instance, in our example, the outcome of a high profit after using technology A is $400,000.
Step 3: Evaluate Your Decision Tree
Now it's time to analyze your decision tree. Simply multiplying the value of the results by their possibility. Then sum up the total value of each node from right to left on your decision tree diagram to compare and make the final decision. Here is our example, the calculation result is:
Since the sum of profit of option A ($320,000) is higher than that of option B ($255,000), so in theory, the company should use technology A as their final decision. Also, keep in mind that the risk preferences (low or high risk) of the decision maker may also lead to different final conclusion.
How to Make a Decision Tree Diagram with an Easy Software?
Let's download a professional decision tree maker first. Edraw Max: a swiss knife for all your diagramming need
- Effortlessly create over 280 types of diagrams.
- Provide various templates & symbols to match your needs.
- Drag and drop interface and easy to use
- Customize every detail by using smart and dynamic toolkits.
- Compatible with a variety of file formats, such as MS Office, Visio, PDF, etc.
- Feel free to export, print and share your diagrams.
The overall step is quite simple even you don't have any diagram design experiences. Simply follow:
Step 1 - Start Your Work
Decision Tree Software Excel Free
Open Edraw Max and go to 'Available Templates' - 'Project Management' - 'Decision Tree', then double-click to open a new drawing page. Alternatively, you can select one ofthe preset templates for your work.
Step 2 - Add Content
Now you can drag and drop some decision tree nodes and symbols on your drawing canvas to build your structure. Also insert the possibility and branch description details if needed. Further expend your decision tree diagram by adding more nodes and branch lines until you reach the final endpoints.
Step 3 - Format Your Diagram
Next, you can choose to change the default colors, sizes, diagram theme, background image and more to display a better visual presentation. When you have finished your work, you can export, print or share your files within just a few clicks.
Have a Try Right Now!
Now, you would surely understand all the key things about the decision tree. Why not try yourself with a free download. software? Simply click on a preset template and then drag and drop any built-in decision tree symbols and node on your drawing board. Also feel free to change the default diagram theme based on the auto-create tools. Once done your work, quickly export to different formats or share on Edraw team cloud to discuss with your team. Click on the Download PC Version and Mac Version at the end of this page to start right now.
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