Decision tree analysis Essay

Decision tree analysis known as an analytical tool applied to decision-making under status of uncertainness. besides clear uping where there are many possible results for assorted options and some results are dependent on old results. However. determination tree will show as a diagram by demoing the relationship among possible classs of action. possible events and the possible results for each class of action in the determination ( Drury. 2012 ) . So determination tree analysis is utile for merchandiser navy company to understand in what way their opportunity events are and what their values in footings of net incomes and losingss are for each of the two tooling options. besides visualize the results of different chances in order make better determination under uncertainness Strengths of determination tree analysis

Decision tree analysis will demo all the options. chances. costs and the possible results that are non even see by the company. The company can add the possible scenario into determination tree diagram. through the diagram can cipher the expected values and a chance distribution in more complex state of affairss and the properties can be chosen in any coveted order ( Kirkwood. 2002 ) . Failings of determination tree analysis

We Will Write a Custom Essay Specifically
For You For Only $13.90/page!


order now

However determination tree analysis brings consecutive determinations and class-overlap job that including categorical variable with different figure of degrees. and the information addition in determination tree analysis are biased in favor of those attribute with more degrees. Besides correlated informations and complex production regulations will happen in determination tree analysis. it can acquire really complex peculiarly if many values are unsure and/or if many results are linked ( Kirkwood. 2002 ) . Merchant navy industry background

Merchant navy industry plays an of import function in both domestic trade and international trade by transporting goods or riders via sea to all around the universe. There are different types of transportation service and sorts of lading in order to function different demands including feeder vas. oilers. container ships. majority carries and specialist ships ( World Shipping Council. 2014 ) . Harmonizing to China Daily Information Co. ( 2012 ) . there is high demand in merchant navy industry due to freight conveyance capacity and lading volumes steadily lifting in the minute. Therefore. it is of import for merchandiser navy company to put in new transportation service to get by with the demand. Company Background – China Shipping ( Group ) Company

China Shipping ( Group ) Company is one of the largest transportation companies in China with about 47. 000 employees worldwide. It was incorporated as international transportation line since 1997 and operates under the direct disposal of Council of the People’s Republic of China. Mr. Li Shaode is the president of the company and it has over 100 subdivisions across different parts and states. besides is headquartered in Shanghai. China. The another five keeping companies owned by China Shipping ( Group ) Company are located in Hong Kong. north America. Europe. Southeast Asia and West Asia. The nucleus concern activities of China Shipping ( Group ) include transportation of oil oilers. particular lading ship rider ships and container vass every bit good as other related concerns like terminal direction. finance and investing. technology. incorporate logistics. transportation bureau. air lading forwarding. container fabrication. human resources. trading and information engineering ( China Shipping. 2012 ) . Case survey

China Shipping ( Group ) Company presently wants to make up one’s mind whether to market new transporting service now. The selling direction estimated that if performs a market survey ( at a cost of ?30. 000 ) . there is a 60 % opportunity that the survey will return in favourable consequences ( referred to as a local success ) and a 40 % opportunity that the survey will return in unfavourable consequences ( referred to as a local failure ) . If a local success is observed. there is an 80 % opportunity that new transporting service will be national success. If a local failure is observed. there is merely a 30 % opportunity that new transporting service will be national success. The selling direction thinks that market transporting new service nationally successful that the expected net incomes ( excepting the cost of the market survey ) will be ?1. 600. 000 nevertheless if the market transporting new service nationally failure so it expected loss of ?700. 000 ( excepting the cost of the market survey ) . However absence of market survey. there are equal opportunities of national success and national failure after if China Shipping ( Group ) Company make up one’s mind to market nationally. Therefore now the selling direction has to find the best scheme that China Shipping ( Group ) Company should follow. Excel

Harmonizing to the determination tree above. the optimum determination for China Shipping ( Group ) Company is to transport out trial market and so market nationally if national success so the company will hold return in expected net income of ?654. 000 compared to make non carry on trial market merely have expected net income of ?450. 000. Sensitivity analysis

Assuming the chance of national success after the market survey will diminish by 15 % and the chance of national success without market survey will increase by 10 % . If a local success is observed. the new chance will diminish from 80 % to 65 % that new transportation service will be national success. If a local failure is observed. the new chance will diminish from 30 % to 15 % that new transportation service will be will be national success. However absence of market survey and instantly market nationally. the new chance will increase from 50 % to 60 % to be national success. Harmonizing to the sensitiveness analysis above. after market survey and market nationally the expected pecuniary value ( EMV ) of local success will diminish from net income ?1. 110. 000 to ?765. 000 compared to the base instance nevertheless the expected pecuniary value ( EMV ) of and market nationally after local failure will stay the same as loss of ?30. 000 compared to the base instance. The concluding expected pecuniary value ( EMV ) of behavior trial market determination will hold an expected net income of ?447. 000 compared to the base instance have ?654. 000. However absence of market survey and whether market nationally. the concluding expected pecuniary value ( EMV ) of local success will increase from net income ?450. 000 to ?680. 000 compared to the base instance.

Comparing the determination of behavior or make non carry on trial market from the new chances. China Shipping ( Group ) Company’s optimum determination is do non carry on trial market and so market nationally so the expected net income will be ?680. 000. However harmonizing to the base instance. China Shipping ( Group ) Company will merely acquire the expected net income of ?654. 000 after behavior trial market and market nationally. Therefore. with the alterations will let the selling direction sees the impact of sensitiveness analysis and comparison to the base instance. It allows the company to understand the overall determination whether market new transporting service nationally with or without market survey. Through sensitiveness analysis. the company know that the value of the chances are sensitive and it will impact the expected net income and determination of the company market the new transportation service with or without trial market. Decision

To reason. if a little alteration in the value of one of the causes a alteration in the recommended determination option. the company will hold different result. However. the expected value is extremely sensitive to the alterations of chances and it will hold important consequence on the determination devising of the company. Therefore the expected values of each determination are evaluated to find optimum theoretical account in order for company to make determination devising. Decision tree is a diagram that shows the possible classs of actions. the possible event which is provinces of nature for each result together with the possible results and associated possibilities. It is a utile analytical tool for transporting scope of alternate classs of actions and the possible results. besides allow company to understand the uncertainness in determination devising ( Drury. 2012 ) . Therefore. determination tree analysis is of import for China Shipping ( Group ) Company to understand the how the different chances will impact the expected value under hazard and uncertainness in order to do optimum determination in the investing. Recommendation

From the determination tree analysis above carried out. it suggested China Shipping ( Group ) Company have to understand the hazard and uncertainness in order to take the optimum determination in the investing. However comparing the scenario to establish instance. if a local success is observed and the new chance will be 65 % that new transportation service will be national success ; if a local failure is observed and the new chance will be 15 % that new transportation service will be will be national success. Absence of market survey and instantly market nationally. the new chance will be 60 % of national success. It showed that with the new chances. China Shipping ( Group ) Company’s optimum determination is do non carry on trial market and so market nationally so the expected net income will be ?680. 000. However harmonizing to the base instance. China Shipping ( Group ) Company will merely acquire the expected net income of ?654. 000 after behavior trial market and market nationally. Therefore. it suggested that China Shipping ( Group ) Company to look into the chances of each determination and the expected value from its chances in order to maximise the investing with optimum determination.

List of mentions

Drury. C. ( 2012 ) Management and cost accounting. 8th edn. Andover: Cengage Learning. pp. 278-292. World Transporting Council. ( 2014 ) About the industry. [ on-line ] Available at: hypertext transfer protocol: //www. worldshipping. org/about-the-industry. [ Accessed: 31 March 2014 ] . China Daily Information Co. ( 2012 ) China leads in transporting industry. [ on-line ] Available at: hypertext transfer protocol: //www. chinadaily. com. cn/business/2012-08/04/content_15644653. htm. [ Accessed: 29 March 2014 ] . China Shipping. ( 2012 ) Company Profile. [ on-line ] Available at: hypertext transfer protocol: //www. cnshipping. com/en/aboutus/companyprofile/index. shtml. [ Accessed: 29 March 2014 ] . Kirkwood. C. W. ( 2002 ) Decision Trees. [ on-line ] Available at: hypertext transfer protocol: //vserver1. cscs. lsa. umich. edu/~spage/ONLINECOURSE/R4Decision. pdf. [ Accessed: 31 March 2014 ] . Bibliography

Lucey. T. ( 2003 ) . Management and cost accounting. 5th edn. London: Cengage. pp. 321-343. Pannell. David J. ( 2013 ) . Sensitivity analysis: schemes. methods. constructs. illustrations. [ on-line ] Available at: hypertext transfer protocol: //dpannell. fnas. uwa. edu. au/dpap971f. htm. [ Accessed: 31 March 2014 ] .