TECHNOLOGICAL INSTITUTE OF THE PHILIPPINES

1338 ARLEGUI ST. QUIAPO, MANILA

Department of Industrial Engineering

Application of Decision Tree:

A Case Study on Mid Lane Internet Café

Caluma, Darlyn Rose V.

Capistrano, Kimberly V.
Tamayo, Julius Cesar M.
calumadarlyn0799@gmail.com, capistranokimberly@gmail.com
julius_tamayo10@yahoo.com

September 2019

Research Paper in Multi Criteria and Decision Making

1st Semester 2019-2020
 ABSTRACT

This case study utilized the concept of Multi Criteria and Decision-Making tool named

the Decision Tree, an aspect in knowing what would be the best investment of regarding to the

business Mid Lane Internet Café. The analysis was carried out and the results were in the large

investment with ₱ 1,000,000.00 invested the net payoff would be ₱ 200,000.00 secondly would

be medium investment with ₱ 500,000.00 invested the net payoff would be ₱ 420,000.00. While

the third investment with ₱ 130,000.00 invested the net payoff would be ₱ 90,000.00. Lastly, the

last option would remain the same. From the analysis, it was observed that the medium

investment would be the best option giving the owner a ₱ 420,000.00 net payoff.
INTRODUCTION

Multi-Criteria Decision Making, or MCDM, is a valuable tool that we can apply to many

complex decisions. It is most applicable to solving problems that are characterized as a choice

among alternatives. It has all the characteristics of a useful decision support tool: It helps us

focus on what is important, is logical and consistent, and is easy to use. At its core MCDM is

useful for:

 Dividing the decision into smaller, more understandable parts

 Analyzing each part

 Integrating the parts to produce a meaningful solution

When used for group decision making, MCDM helps groups talk about their decision

opportunity (the problem to be solved) in a way that allows them to consider the values that

each view as important. It also provides a unique ability for people to consider and talk about

complex trade-offs among alternatives. In effect, it helps people think, re-think, query, adjust,

decide, rethink some more, test, adjust, and finally decide.

MCDM problems are comprised of five components:

1. Goal

2. Decision maker or group of decision makers with opinions (preferences)

3. Decision alternatives

4. Evaluation criteria (interests).

5. Outcomes or consequences associated with alternative/interest combination

 The Multi-Criteria and Decision Making, or MCDM tool that the researchers will use in

this case study is Decision Tree, where the researcher would analyze the main problem of

choosing what would be the best upgraded version of the Mid Lane Internet Café.

STATEMENT OF THE PROBLEM

The researchers conducted this study based on real activities of the Mid Lane Internet

Café where they have interviewed the owner Mr. Clark Karoll L. Landrito. The Mid Lane Internet

Café was a huge success in their family. The owner decided to improve their Internet Café by

this year since the owner wants to have a best and possible result for their business, they

decided to let the researchers conduct the application of decision tree. After having approval in

the bank Mr. Clark Karoll L. Landrito is faced with a choice of the following

I. A large investment to improve his overall business. This would require an investment

of ₱ 1 million that would renovate the overall business and upgrading the facilities,

computer setups, and air conditions. The assurance in this investment would give the

owner a pay-off of ₱ 1.5 million per year with a probability of 40% and the 60%

would be a pay-off of ₱ 1 million per year.

II. A medium investment where the business would provide air conditions and upgraded

computer setup that would be an investment of ₱ 500 thousand. The assurance in

this investment would give the owner of pay-off ₱ 1 million per year with a probability

of 60% and the 40% would be the pay-off of ₱ 800 thousand per year.

III. A small investment where the owner would simply invest ₱ 130 thousand. In

upgrading computer setups and adding more computers without air condition with a

pay-off of ₱ 250 thousand per year with a probability of 70% and the 30% would be

the pay-off of ₱ 150 thousand per year.

IV. He would just continue the present operation without changing. It will cost nothing and

will not produce any payoff.

OBJECTIVES

The main objectives of this paper are:

 To formulate a decision tree that would give detailed ideas in each investment.

 To know about each decision alternatives based on their expected values

 To be able to recommend a better option of investment in the current case study.

 To know what to investment to pursue with the Mid Lane Internet Café.

 To provide detailed decision tree in form of MS Excel.

 To be able to give the approximation Net Expected Monetary Value based on the

decision alternatives.

METHODOLOGY

The researchers used both analytical and MS Excel software in solving the given case

study.

1. Computation of High Pay-off and Low Payoff Expected Monetary Value

Option 1: Large Investment

High Payoff =1,500,000.0 0−1,000,000.00=₱ 500,000.00

Low Payoff =1,000,000.00−1,000,000.00=₱ 0.00

Option 2: Medium Investment

High Payoff =1,000,000.00+500,000.00= ₱ 500,000.00

Low Payoff =800,000.00+500,000.00=₱ 300,000.00

 Option 3: Small Investment

High Payoff =250,000.00+130,000.00=₱ 120,000.00

Low Payoff =150,000.00+130,000.00=₱ 20,000.00

Option 4: No Investment

High Payoff =₱ 0.00

EMV = ₱ 0.00

2. Computation of Net Expected Monetary Value

Option 1: Large Investment

nEMV =₱ 500,000.00 ( .40 ) + ₱ 0.00(.60)= ₱ 200,000.00

Option 2: Medium Investment

nEMV =₱ 500,000.00(.60)+ ₱ 300,000.00(.40)= ₱ 420,000.00

Option 3: Small Investment

nEMV =₱ 120,000.00(.70)+ ₱ 20,000.00(.30)= ₱ 90,000.00

Option 4: No Investment

nEMV =₱ 0.00

3. Ranking

Decision Alternatives Rank

Large Investment 2nd
Medium Investment 1st
Small Investment 3rd
No Investment 4th
Table 1.1: Ranking of Decision Alternatives
Figure 1.1: Decision Tree Diagram
Excel Formula

1. Computation of Expected Monetary Value by using MS Excel (Green)

Option 1: Large Investment

High Pay-off = =H4-E4 Low Pay-off = =H9-E4

Option 2: Medium Investment

High Pay-off = =H14-E14 Low Pay-off = = =H19-E14

Option 3: Small Investment

High Pay-off = =H24-E24 Low Pay-off = =H29-E24

Option 4: No Investment

There are no high and low payoffs.

2. Computation of Net EMV by using MS Excel (Yellow)

Option 1: Large Investment

Net EMV = =(K3*H1) + (K8*H6)

Option 2: Medium Investment

Net EMV = =(K13*H11) + (K18*H16)

Option 3: Small Investment

Net EMV = =(K23*H21) + (K28*H26)

Option 4: No Investment

There are no Net EMV

 3. Other Formulas (Pink and Orange)

=IF(A20=E6,1,IF(A20=E16,2,IF(A20=E26,3,IF(A20=E34,4))))

=MAX(E6,E16,E26,E34)

RESULTS

After the data gathered had been analyzed and solve using the Decision tree tool. The

last option of the Mid Lane Internet Café will be the Small Investment with a net of 90,000.00

while second is Large Investment with a net investment of 200,000.00 and lastly the investment

that they must choose is the medium investment with a net of 420,000.000. The owner Mr. Clark

Karoll L. Landrito must choose the medium investment over the other options to have a

maximum payoff that would benefit the future of his business the Mid Lane Internet Café.

CONCLUSION
Based on the data gathered and the major findings of the research, the following
conclusions were drawn:

 Decision tree would give you detailed idea on decision would you choose.

 MS Excel decision tree add-ins would provide a decision tree diagram where it will

automatically solve the current problem.

 Upon knowing the results, it would be best if the owner invests in the Medium

Investment in improving the Mid Lane Internet Café.

REFERENCE

 https://treeplan.com/

 https://www.youtube.com/watch?v=pXginet_leg

 https://asia.blackboard.com/index.html

 https://treeplan.com/