Chapter 5: Design of Goods and Service (PORTION)

1. Application of Decision Trees and Product Designs.

• Used for new product decisions and other management problems.
• Very helpful when there are a series of decisions followed by various
outcomes.
• Procedure of building a decision tree.
▪ Be sure that all possible alternatives and states of nature are
included.
• May include the alternative of doing nothing.
▪ Payoff are entered at the end of each branch (appropriate to the
event of course.)
• Represents the payoff of achieving the branch.
▪ Objective is to determine the EMV of each course of action.
• Can be accomplished by starting at the end of the tree and
working the way to the start.