A decision tree is a graphic representation of the decision process indicating decision

alternatives, states of
nature, probabilities attached to the states ofnature and conditional benefits and losses.
'Decision Tree' is one of the devices of representing a diagrammatic presentation of
sequential and multi
dimensional aspects of a particular decision problem for svstentatic analysis and evaluation.
The decision tree consists of nodes and branches. The nodes are two types, decision nodes and
chance node'
Courses of action (or strategies) originate from the decision nodes as the main branches. At the
terminal of each
rnain branch there is a chance node. From these chance nodes, chance events emanate in the
form of sub
branches.
The respective payoffs and the probabilities associated u ith alternative courses and the
chances events are
shown along the sub branches. At the terminal of the sub branches are shown the expected
values of the
outcome.

Ar, Az, A:, A+ are strategies E1, E2, E3 are events O11, O12, O21,
Ozz, Ol,O:2.
A decision tree is highly useful to a decision maker in multistage
situations which involve a series of decisions each dependent on
the preceding one. Working backward, from future to the present,
we are able to eliminate unprofitable branches and determine
optimum decisions. The decision tree analysis allows one to
understand, simply by inspection, various assumptions and
alternatives in a graphic form which is much easier to understand
than the abstract analytical form.

Steps in Decision Tree Analysis

Step I I ldenti$ the decision points and the alternative courses of action at each decision point
systematicalir
Step 2) At each decision point determine the probability and the pay-off associated with each course
oiacti.:-
Step 3) Commencing from the extreme right end, compute the expected payoffs (EMV) for
each course
action.
First decision
point reached
Figure 5.5: Steps in Decision Tree Analysis
Step 4) Choose the course ofaction that yields the best pay-offfor each
of the decisions.
Step 5) Proceqd backwards to the next stage ofdecision points.
Step 6) Repeat above steps till the first decision point is reached.
Step 7) Finally, identifu the courses of action to be adapted from the beginning to the end
under different
possible outcomes for the situation as a whole.
5.1.3. Advantages of Decision Tree
l) It structures the decision process and helps decision-making in an orderly, systematic
and sequential
manner.
2) It requires the decision maker to examine all possible outcomes, whether desirable or
undesirable.
3) It communicates the decision-making process to others in an easy and clear manner,
illustrating each
assumption about the future.
4) It displays the logical relationship between the parts of a complex decision and identifies the
time sequence
in which various actions and subsequent events would occur.
5) It is especially useful in situations where in the initial decision and its outcome affects the
subsequent
decisions. It can be applied in various fields such as introduction of a new product, marketing,
make or buy
decisions, investment decisions, etc.
5.1.4. Disadvantages of Decision Tree
1) Decision tree diagrams become more complicated as the number of decision alternatives
increases and more
variables are introduced.
2) It becomes highly complicated when interdependent alternatives and dependent variables are
present in the
problem.
It assumes that utility of money is linear with money.
It analyses the problem in terms of expected values and thus yields an 'average' valued solution.
There is often inconsistency in assigning probabilities for different, events.

frampre 20: A firm owner is seriou-sly considering of drrring a farm *e-, in-1h| nast'oniy
70% of wells
:illed were succesrrrr'"iioo ieet of o.p,i'-ir rrr" a-r"u. Mor"&er on finding no.\\ater at
200ft'' some per-
;,.ns drilled it further upto 25'ft u.ut 1nlv
iOl, struck water *iibtlrtre prlr'ailing cosr of drilling is ( 50
-r foot. The farm o*n". has estimat.a tilui;;;;." he does;;,";;,;i; L*'n o-rti' he *ill
hare to pav (
.5.000 over the next r0 years, in pv ,...,'i" tuv *ut", r.o*,r',?rr."-i;;;;; The folro'*ing
decrsions can be
:o',ti mal.
Do not drill anY well
l) Drill uP to 200ft and
:i ii;;";;l; ril;200ft' drilr rurther up to 250ft'
Draw an appropriate decision tree and determine the farm owner's strategy under E'M'V' approach'
Solution: Figure 5'6 represents the decision ree diagram for the problem'

At D2 Point
n."iriort a) drill uPto 250feet
Event: a) No water
Probabilities are 0'2, 0'8
EMV for drlr upto 250 feet: (12500 x 0.2) + (27500 x 0'8) = 24500
EMV for do not drill = 25000 (from the tree)
EMV is smaller for the act drill up to 250 feet' So it is optimal act'
At Dl Point
Thedecisionsaredrillupto200feetanddonotdrill.EventsaresameasthoseofD2point.
Prcbabilities are 0'7, 0'3'
EMV for drill upto 200 feet = (10000 x 0.?) + (24500 x 0'3): 14350
EMV for do not drill = 15'000 from the tree'
The optimal decision is drill upto 200 feet (as the EMV is small)'
Therefore combining Dr and- Dz the optimal strategy is to drill the we, upto 200 feet and if no
ruater is *::;L
ihen further drill it upto 250 feet'

Ques I a) Describe the uses of Lpp in business

managemenl
Ans: Uses of LPP in Business Managemen t 2) l) Finance: The technique of linear programming is
very important in finance sector. A finance manager
can-use linear programming to make an optimum use
offinancial resources.
2) Industrial: With the help of linear programming, the
production costs can be minimised. Though the6 are
various constraints with a manufacturing ioncern but
linear programming finds the best soluilon under the
prevailing constraints.
Administrative: In this sector, the technique of linear
programming can be used to get the maximum
efficiency. To make the administrative work effective
and efiicient, a manager can choose the best method
out of various managerial methods.
Defence: The linear programming can also be used in
defence sector to make an oplimal utilisation of
limited defence resources to get the goal.
Trade: In this sector, the linear programming can be used very widely, with the help oi liruu.
programming estimation of demand, price, etc., can
be made.
Transport: Linear programming keeps an important
place in the determination of transportation cost. The
transportation cost can be minimised with the help of
linear programming.
a
\:
D'-
-l \.
a \a
\
!
3)
3)
4)
5)
6)
Or
Ques I b) Describe the scope ofoperation research.
Ans: Scope of Operation Research l) Industry: In the field of industrial management,
there is a chain of problems starting from the
purchase of raw materials to the dispatch of
finished goods. The management is interested in
having an overall view of the method of optimising
profits. In order to take decision on scientific basii
operations research team will have to consider
various alternative methods of producing the goc:i
and the return in each case.
Developing Economies: In both developing ar';
developed economies, operations research approach L
equally applicable. In deveioping economies, there i:
a great scope of developing an operations researci:
approach towards planning. The basic problem is tc
oiient the planning so that there are maximum grouth
of per capita income in the shortest possible time, b1
taking into consideration the national goals anc
restrictions imposed by the country. The basic
problem in most of the countries in Asia and Africa is
io ..*or. poverty and hunger as quickly as possible'
There is, therefore, a great scope for economists'
statisticians, administrators, technicians, politicians
and agriculrure experts working together to solve this
problem rvith a operations research approach.
Agriculture Industry: Operations research approach
needs to be equally' developed in agriculture sector on
national or international basis. With population
explosion and consequent shortage of food, every
country is facing the problem of optimum allocation
of land to various crops in accordance with climatic
conditions and available facilities. The problem of
optimal distribution of water from the various water
.irour..t is faced by each developing country and a
good amount of scientific work can be done in this
direction,
Organisation: Operations research approach is
equitty applicable to big and small organisations'
Quantitativi techniques have improved the
productivity of organisation's operations,
5) Business and Society: Operations research is directly
applicable to business and society. Operations
risearch methods can also be applied in hospital and
clinics to reduce waiting time of outdoor patients and
to solve the administrative problems.
Simulation methods can be applied in the area of
transport to regulate train arrivals and their running
timeJ. Queuing theory can be applied to minimise
congestion and passengers' waiting time.

;;;"tt* oo''o'"n "un"o""t'on

*too"l u'
Thakur's MBA Second Semestet (Quanri':ire Te;rjqrs !h-i|
il-r-;r - ffiffir' convert it to
,*ridq
iforr

ffi
Ques 3 a) Describe the advantages of resource
planning.
Resource Plan summar''::^:'^',i;' ; ;L,mented Reso urce

fr i:$tlltlt"l;t*.ffi#ln'ffi :3H;.'i{r{:li
iiffilEHlll":T1"i-,.ffi ;; guin upp'ouul fr om vour
ffiffi ensuring their buY-in'
A source. P,* : :f "fi ;*$""m5:,'THj l'1
Re

'*3'",:i
*fi"l:?:fi;,i"''*i' need '? create a
comprehensiv" ot'"'llli n'*'to ensure-that all of the
resources needed t" ""'p"t" tt'e project are identified' By
imolementin g n'o'"t"il"!o-t'it"'
pi*iti n g pract ices' it al so
heips vou with fiH;;'ano firecasting project
exPenditure'

Advantages of Resource Planning

1) lt leads to devffi;#;i;""*s rvhich makes the
job easier'
2\ Resource planning makes a company more productive
Lt
il-v tt-"itg"r"g traiitional working practrces'

3) [ **,fuirfii'#":rffi'"Hil: Hr;l'i};l[
to meet deadlines'
4) The Resource Planning *illlttqilt:jifv the:
)
L+

tl
'- i*;;"t ruuoi ttq'uittd for the project
ii) notts anAiiey responsibilities for each labor qpe
iii) Number "i'i""" reQuired to,fill each role
iv) Items "f
tqu'p**'to be used and their purposes
v)
'vpt'
*a'qt'"*ities of equipment needed
vi) Total *o*t of materials needed
vii) This *t'loi""'f* template will also help you
Problem
for using or consuming these

xi) Bv p*'h"'Tf^lli'"'";:*::, jff *9,i:[$"T;

you can sche
complete your project successfully'
Or
Ques 3 b) Write the uses oiwaiting line model'

Ans: Uses 9f Y"*i"q,L#"#;$tt, relation to fast food ]

1 ) Xin",',l
,i f : iJi I ",#;; u Jruoo "' inc I ud in g whe n

large number' "t

;l;;;;; can tvpicauv be expected
to arrive, tt" umouo]t'lriirn" tut**ers'u^sually spend
in the restaurunt un'i'til" nu*utt of31{iesjln^ected to

iil:;;"';* iaute iong after thev finish eatrng'

Fast-foodrestalrrantscommonlyh."*:h:"customers
waiting in u
'ingri'qut"t
i" ilti"? th^tit orders and
then sit down or r'l'li"iii it''i' *-1i11t1.goal of using

ffi i," .n::r.,*,i.trf H #t$j:,,li,,$3l"lr

::'fiT1}':-'l'ffi; 'i'*i"ii 'i*:: ':l "i'
dav' on
busier davs "' ';:'"t;;tiui
&"ntt turting place in the
area. lf it's not p*tfit t;.tPttd up-:::ice' you also
Iun *o't to improve the waiting experlence'
2\ Retail Stores and Banks: In many r^etail stores and
banks,'unu*tiitii"tiu' t'ito' to ttg"t:--^:l:
dissatisfaction oi'tuuo'ers'by :9':l]"* increasurg
tttt tp*O "iti'e
checkout and cashier ttnes'
Although most grocery stores seem-to have retained
the multiple f#Jrntritipft :lttt\oul svstem' many
banks and t"dit ili;;iouiattt have sone in recent
fl'":x,'ml#&i"'r"h{*t"'n'ui':il!i llr.,.i"s i" ",::[":i*ruffis,*:lffi
lltJ,l:
slow transactto

xi) Bv p*'h"'Tf^lli'"'";:*::, jff *9,i:[$"T;

you can sche
complete your project successfully'
Or
Ques 3 b) Write the uses oiwaiting line model'
remaining customers'
3) Medicar:':1*:Tff[,',,"Trh :'.H$"3#t:
comPlex queulng
reduced through: stages (e.g.,
ii-"1'runugtrnlnt of work among t:*':^"-
coordinati""