Chicago Management Institute, UAE is committed to helping you with your RMP® Examination through its preparatory programs conducted in Dubai and Sharjah. Here is an article about Decision Trees that are extensively used in PMP and RMP programs.

Decision Trees is a diagram that can help you choose between many different alternatives. Not only do they provide you a visual tool  to weight options and results associated with each decision, but also lets you associate measurable values like - monetary value and Probability to Each Decision. 

Decision trees find use in many fields , but our example touches upon the aspects of PMP and RMP.

Drawing A Decision Tree.

The Macro steps involved in Drawing a Decision Tree are

1. Gather all the Data and alternative decisions you need to take.
2. Assign A Probability of Occurrence and Monetary value to Each Decision outcome
3. Calculate the Cost of Each Decision path. The Lowest Cost/Highest benefit Decision path is the one you are looking for.

Consider this Problem

An Organization wants to decided weather to hire Contractor A or Contractor B.  While Contractor A has a lower bid, he may complete late. Bidder B has a higher change of completing the job in time, but he is Expensive.

You have to gather first all the numeric data like the monetary value of each decision and the probably of each event.

Contractor A bid = $ 75K
contractor B bid = $ 60K

Chances of Conractor A finishing late = 35%
Chances of Contractor B finishing Late = 85%
Penalty on Finishing late = $ 25K

1. Draw the first decision tree with 2 branches - Each representing the primary decision.  Give each decision a Monetary value. There is no probably associate.

2. for Contractor A since the chance of finishing Late is 35%,  there will be 2 subbranches each assigned a probability and monetary value.

3. There is no cost of timely completion. However there is a cost of 0.35 x $25K , additionally involved, in case A can't finish in time.

3. Do the Same for Contractor B, who has an 85% chance of finishing Late .

4. Now you can calculate the value of different decision paths.

Choosing A has a total cost of
Us$ 75K
+
chance of finishing late cost = 0.35 * 25k =8,750

Total cost = $83,750

Choosing B has a total cost of

Us$ 60K
+
chance of finishing late cost = 0.85 * 25k =16,250

Total Cost = $ 76,250

As you can see, Contractor B is the cheaper option, even though he has a higher chance of finishing late.

What if the Penalty on finishing late was US$ 50K. Would B still be cheaper ? Recalculate and see.

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