Any business must make a decision which will ultimately produce some kind of product that can be either goods or services. An important decision can affect the company, the products and its employees.
- Plant: The decision to invest in new factories, or in upgrading the present ones
- Products: The decision to start new lines
- People: The decision to invest in the form of development and training
Most decisions are dependent upon its predictability. A distinction exists between non-programmed and programmed decisions. The programmed decisions are routine, straightforward and repetitive and can be managed by formal patterns, like stock re-ordering by the company. In contrast, non-programmed decisions are consequential, novel and unstructured. There is no single solution for managing the situations that have not been encountered earlier. In general, three levels exist when it comes to decision making within a company.
- Short term operating control decisions: These involve frequent predictable and short term operations.
- Periodic control decisions: They are made less often and concerns the monitoring of how effectively the organization is when it comes to manage its resources. To give an example, these can include review of the pricing strategies applicable for a few products, and the reviewing of problems which occur in a continuing company budget. These also include the re-appraisal of methods of using the sales force. These kind of decision involves checking and rectifying problems that are concerned with meeting the company goals.
- Strategic decisions: These decisions concern the overall strategy. They frequently need substantial utilization of judgment by group or person who are entrusted with making such decisions. This is due to the fact that such decisions will invariably require considerable analysis, and important information chunks will often be missing, therefore presenting the involvement of risk. Such decisions could involve new product development, investment in new marketing strategies or new plants.
These are named like that as there is a way they separate into a number of branches or outcomes from the original stem or decision. These trees are techniques for tracing all known outcomes when it comes to a specific decision so that all the possible consequences can be drawn out.
In any decision tree, the points at which the decisions are made are represented through squares or decision forks. The points where the probability or chance comes into effect are represented through circles.