Decision Tree Analysis

The Lumenaut Decision Tree package provides a range of tools that enable the user to easily and quickly build decision tree models for many real life situations natively in Excel. The user can quickly model real life decision processes in Excel and select the decision path that produces either the highest or lowest outcome. By making better informed decisions, companies can select the optimum path for their business.

The Lumenaut Decision Tree Analysis package is used in many industries from Oil & Gas, Automotive, Pharmaceutical& Chemical, Health Care, Energy, Mining, to name but a few, to help make more analytically driven decisions.

Introduction to Lumenaut Decision Tree Analysis

Most decision processes in business, engineering and science can be modeled using the Lumenaut Decision Tree Analysis Package, the tree below represents a simple model to decide whether to drill for oil or not. The key variables are drilling costs ($-125,000), expected probability of striking oil (10%) and value of strike ($1,670,000). In this model, the decision is to drill for oil.

Click for full set of analysis

But what about the sensitivity of the input variables? A One-Way and Two-Way sensitivity analysis can be carried out on individual model variables to identify change points in the model, the tables and chat below indicates the result of a two way analysis on Drilling Costs and Probability of Striking Oil.

Tornado charts shows the percentage change in the payout or Expected Monetary Value (EMV) for each variable in the sensitivity analysis.

Spider Charts shows the relationship between the percentage change in the variables and the final payout – opposite.

The risk profile and cumulative risk profile for the tree is given below, note only two payout’s one at 90% probability and the other at 10% probability. 

Additional functions are available such as Exponential Utility which are used to translate actual values into a measurement of utility to the decision maker. Net present value (NPV) enable tree decisions to be made in today’s dollars taking into account the cost of capital over the entire time period the decision tree covers.