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  • Decision Tree Example

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    muhammad saad
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    1. The document presents a decision tree to analyze alternative power sources for a processor, comparing electricity, gas, and doing nothing. 2. For the original analysis, electricity had the highest expected value at $6.75 million, so electricity was recommended. 3. The analysis was then modified to include a chance of failure and modification for the electricity option. 4. With the modification, gas had the highest expected value at $13.1 million, so gas was recommended as the best option.

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    Decision Tree Example

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    1. The document presents a decision tree to analyze alternative power sources for a processor, comparing electricity, gas, and doing nothing. 2. For the original analysis, electricity had the highest expected value at $6.75 million, so electricity was recommended. 3. The analysis was then modified to include a chance of failure and modification for the electricity option. 4. With the modification, gas had the highest expected value at $13.1 million, so gas was recommended as the best option.

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    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
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    Download as pdf or txt
    9 views2 pages

    Decision Tree Example

    Uploaded by

    muhammad saad
    1. The document presents a decision tree to analyze alternative power sources for a processor, comparing electricity, gas, and doing nothing. 2. For the original analysis, electricity had the highest expected value at $6.75 million, so electricity was recommended. 3. The analysis was then modified to include a chance of failure and modification for the electricity option. 4. With the modification, gas had the highest expected value at $13.1 million, so gas was recommended as the best option.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
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    of 2

    Name Muhammad Sa'ad

    ID Student 29121434

    DECISION TREE

    Alternative Power Source for Processor,


    Electricity & Gas?

    Electricity Powered
    Gas Powered Source Do Nothing
    Source

    Successful Failure Successful Failure

    Prob: Prob: Prob: Prob: Prob:


    75% 25% 60% 40% 100%

    Profit Loss Profit Loss $ 0 Investment, $ 0


    + $ 10.000.000 - $ 3.000.000 + $ 15.000.000 - $ 7.000.000 Revenue

    Expected Elec Expected Gas


    Expected Failure Expected Failure
    Succes Succes
    25% x - $ 3 M 40% x - $ 7 M
    75% x $ 10 M 60% x $ 15 M
    = - $ 0.75 M = - $ 2.8 M
    = $ 7.5 M =$9M

    = $7.5 M - $0.75 M = $ 9 M - $2.8 M $ 0 Investment,


    = $ 6.75 M = $ 6.2 M $ 0 Revenue

    - The Best Decision recommended is Electricity Power Sourced

    Alternative Power Source for Processor,


    Electricity & Gas & modified?

    Electricity Powered
    Gas Powered Source Do Nothing
    Source

    Successful Failure Successful Failure

    Prob: Prob: Prob: Prob: Prob:


    75% 25% - Loss $ 3.000.000 60% 40% 100%

    Profit Profit Loss $ 0 Investment, $ 0


    Modify
    + $ 10.000.000 + $ 15.000.000 - $ 7.000.000 Revenue

    Successful Failure Successful Failure

    Prob: Prob: Prob: Prob:


    30% 70% 80% 20%
    Profit Loss Profit Loss
    + $ 6.000.000 - $ 7.000.000 + $ 10.000.000 - $ 12.000.000
    Expected Failure Expected Failure Expected Failure
    Expected Failure
    Modified Succes Modified Failure Modified Failure
    Modified Succes
    A. 25% x - $ 3 M A. 25% x - $ 3 M A. 25% x - $ 3 M
    A. 25% x - $ 3 M
    = - $ 0.75 M = - $ 0.75 M = - $ 0.75 M
    = - $ 0.75 M
    B. 30% x + $ 6M B. 70% x - $ 7 M B. 20% x - $ 12 M
    B. 80% x + $ 10M
    = $ 1.8 M = - $ 4.9 M = - $ 2.4 M
    =$8M
    C = A+B C = A+B C = A+B
    C = A+B
    = - $ 0.75 M + $ 1.8 = - $ 0.75 M + - $ = - $ 0.75 M + - $
    = - $ 0.75 M + $ 8 M
    M 4.9 M 2.4 M
    = $ 7.25 M
    = $ 1.05 M = - $ 5.65 M = - $ 3.15 M

    Expected Elec Expected Gas


    Succes = $1.05 M - $5.65 M Succes = $7.25 M - $3.15 M
    75% x $ 10 M = - $ 4.6 M 60% x $ 15 M = $ 4.1 M
    = $ 7.5 M =$9M

    $ 0 Investment,
    $ 2.9 M $ 13.1 M
    $ 0 Revenue

    - The Best Decision recommended is Electricity Gas Sourced

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