IB Business Management Topic Decision Trees Revision Notes (SL/HL)

IB Business Management Topic Decision Trees Revision Notes (SL/HL) | RevisionDojo

Written by official IB examiners

Decision trees map options, outcomes, probabilities, and payoffs

Definition

Decision tree

A visual tool that helps you choose between options when each option has uncertain outcomes. It maps out every possible result, how likely it is, and what it's worth.

Each decision is one possible option.
1. Example: "Launch Product" vs "Do Nothing".
Each decision has outcomes (things that might happen).
1. Example: demand might be high, medium, or low.
Every outcome gets a probability (chance it happens, from 0 to 1) and a payoff (how much money you gain or lose).
All probabilities for one decision must add up to exactly 1.0 because one of the outcomes will definitely happen.
Expected value is calculated by multiplying each outcome's probability by its payoff and adding the results.
The decision with the highest EV is usually the best rational choice.

Click the nodes to change the values and see how it affects the decision tree.

Decision trees use nodes, branches, and outcome values to show decision paths

Nodes show decisions, chance events, and final outcomes

Nodes represent decision points, chance events, or outcomes.

Decision Nodes (Squares/Rectangles): Points where a choice must be made.
Chance Nodes (Circles): Points where an outcome depends on probability.
Outcome Nodes: End points showing the result of a decision path.

Tip

Use consistent shapes so decision nodes, chance nodes, and outcome nodes are identified quickly when interpreting the tree.

Branches

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Definition

Paywall

(on a website) an arrangement whereby access is restricted to users who have paid to subscribe to the site.

anim nostrud sit dolore minim proident quis fugiat velit et eiusmod nulla quis nulla mollit dolor sunt culpa aliqua

Lorem ipsum dolor sit amet, consectetur adipiscing elit. Sed do eiusmod tempor incididunt ut labore et dolore magna aliqua. Ut enim ad minim veniam, quis nostrud exercitation ullamco laboris nisi ut aliquip ex ea commodo consequat.

Duis aute irure dolor in reprehenderit

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Note

Lorem ipsum dolor sit amet, consectetur adipiscing elit, sed do eiusmod tempor incididunt ut labore et dolore magna aliqua. Ut enim ad minim veniam quis nostrud exercitation.

Excepteur sint occaecat cupidatat non proident

Nemo enim ipsam voluptatem quia voluptas sit aspernatur aut odit aut fugit, sed quia consequuntur magni dolores eos qui ratione voluptatem sequi nesciunt. Neque porro quisquam est, qui dolorem ipsum quia dolor sit amet, consectetur, adipisci velit.

Tip

Lorem ipsum dolor sit amet, consectetur adipiscing elit, sed do eiusmod tempor incididunt ut labore et dolore magna aliqua. Ut enim ad minim veniam, quis nostrud exercitation ullamco laboris nisi ut aliquip ex ea commodo consequat.

Lorem ipsum dolor sit amet, consectetur adipiscing elit.
Sed do eiusmod tempor incididunt ut labore et dolore magna aliqua.
Ut enim ad minim veniam, quis nostrud exercitation ullamco laboris.
Duis aute irure dolor in reprehenderit in voluptate velit esse cillum.

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Decision trees map options, outcomes, probabilities, and payoffs

Definition

Decision tree

A visual tool that helps you choose between options when each option has uncertain outcomes. It maps out every possible result, how likely it is, and what it's worth.

Each decision is one possible option.
1. Example: "Launch Product" vs "Do Nothing".
Each decision has outcomes (things that might happen).
1. Example: demand might be high, medium, or low.
Every outcome gets a probability (chance it happens, from 0 to 1) and a payoff (how much money you gain or lose).
All probabilities for one decision must add up to exactly 1.0 because one of the outcomes will definitely happen.
Expected value is calculated by multiplying each outcome's probability by its payoff and adding the results.
The decision with the highest EV is usually the best rational choice.

Click the nodes to change the values and see how it affects the decision tree.

Decision trees use nodes, branches, and outcome values to show decision paths

Nodes show decisions, chance events, and final outcomes

Nodes represent decision points, chance events, or outcomes.

Decision Nodes (Squares/Rectangles): Points where a choice must be made.
Chance Nodes (Circles): Points where an outcome depends on probability.
Outcome Nodes: End points showing the result of a decision path.

Tip

Use consistent shapes so decision nodes, chance nodes, and outcome nodes are identified quickly when interpreting the tree.

Branches

Definition

Paywall

(on a website) an arrangement whereby access is restricted to users who have paid to subscribe to the site.

anim nostrud sit dolore minim proident quis fugiat velit et eiusmod nulla quis nulla mollit dolor sunt culpa aliqua

Duis aute irure dolor in reprehenderit

Note

Lorem ipsum dolor sit amet, consectetur adipiscing elit, sed do eiusmod tempor incididunt ut labore et dolore magna aliqua. Ut enim ad minim veniam quis nostrud exercitation.

Excepteur sint occaecat cupidatat non proident

Tip

Lorem ipsum dolor sit amet, consectetur adipiscing elit.
Sed do eiusmod tempor incididunt ut labore et dolore magna aliqua.
Ut enim ad minim veniam, quis nostrud exercitation ullamco laboris.
Duis aute irure dolor in reprehenderit in voluptate velit esse cillum.

Unit 1: Introduction to Business Management - Core operational components and business functions6 subtopics

Unit 2: HR Management - Motivation, Structure, Hierarchy7 subtopics

Unit 3: Financial Management - Accounting, Ratio evaluation, Core Financial Documents9 subtopics

Unit 4: Marketing Management - The 7 P's, strategies and forecasting6 subtopics

Unit 5: Operations Management - Production Methods, Production planning and management9 subtopics

BM Toolkit - Core business frameworks and tools15 subtopics

IB Business Management Decision Trees Notes

Unit 1: Introduction to Business Management - Core operational components and business functions6 subtopics

Unit 2: HR Management - Motivation, Structure, Hierarchy7 subtopics

Unit 3: Financial Management - Accounting, Ratio evaluation, Core Financial Documents9 subtopics

Unit 4: Marketing Management - The 7 P's, strategies and forecasting6 subtopics

Unit 5: Operations Management - Production Methods, Production planning and management9 subtopics

BM Toolkit - Core business frameworks and tools15 subtopics

Decision trees map options, outcomes, probabilities, and payoffs

Decision trees use nodes, branches, and outcome values to show decision paths

Nodes show decisions, chance events, and final outcomes

Branches

anim nostrud sit dolore minim proident quis fugiat velit et eiusmod nulla quis nulla mollit dolor sunt culpa aliqua

Duis aute irure dolor in reprehenderit

Excepteur sint occaecat cupidatat non proident

Unlock the rest of this chapter with a free account

Decision trees map options, outcomes, probabilities, and payoffs

Decision trees use nodes, branches, and outcome values to show decision paths

Nodes show decisions, chance events, and final outcomes

Branches

anim nostrud sit dolore minim proident quis fugiat velit et eiusmod nulla quis nulla mollit dolor sunt culpa aliqua

Duis aute irure dolor in reprehenderit

Excepteur sint occaecat cupidatat non proident

Unlock the rest of this chapter with a free account