PrecisionTree

Decision Analysis in Microsoft Excel!

Decisions, decisions, decisions! When you are faced with large and complex decisions, you need to organise them efficiently while considering all possible options. Decision trees and influence diagrams are perfect for this, and PrecisionTree lets you create them right where you work the most - in Excel! PrecisionTree allows you to clearly model your decisions and identify the best decision to make as well as the risks involved!

PrecisionTree is the Decision Analysis Add-In for Microsoft Excel;

Build decision trees and influence diagrams directly in your spreadsheet! Create diagrams easily by selecting cells in your spreadsheet and clicking node buttons at the PrecisionTree toolbar. Enter probabilities and payoffs directly in cells in your tree. With one click, PrecisionTree will run a powerful decision analysis on your model, determining the best way to proceed with your decision.

Who should use PrecisionTree?

Anyone faced with a set of alternative decisions should use PrecisionTree. Businesses use PrecisionTree to make decisions on introducing new products, factoring in decisions at each stage of marketing and production. Gas and oil companies use PrecisionTree to make the best decisions when developing an oil field. No matter what industry, PrecisionTree can work for you.

Decision Analysis

Decision Analysis is a process that allows you to examine decisions in a structured and efficient manner.

Using decision trees and influence diagrams lets you detail all of your possible options and identify the best decision to make. Decision Analysis uses powerful analytical techniques developed at Stanford, Harvard and other universities over the past thirty years. The most

efficient way to build a Decision Analysis model is graphically using influence diagrams and decision trees. Both methods use symbols, or nodes, and lines connecting them. Influence diagrams quickly define the general structure of a decision model. Decision trees provide a more formal structure in which decisions and chance events are linked from left to right in the order they would occur. (For example, before you decide where to have a picnic, you need to determine the chance that it will rain.) The result is a tree structure with the "root" on the left and branches for each chance event or decision extending to the right. Probabilities of events occurring and payoffs for events and decisions are added to each node in the tree.

Benefits of Decision Analysis

Model decisions efficiently and effectively

Formally analyse decisions, clearly laying out your goals and options
Decision trees capture a chronological sequence of choices and possible events
Make well-informed decisions
Influence diagrams capture the general structure of a decision
Explain and document your reasoning to others

Using PrecisionTree

Decision Analysis is now

available where you do your modelling - in Microsoft Excel. PrecisionTree is an “add-in”, linking directly to Excel to add Decision Analysis capabilities. The PrecisionTree system provides all the necessary tools for setting up and analysing decision trees and influence diagrams. And PrecisionTree works in a style you are familiar with - Excel-style menus and toolbars.

PrecisionTree Features

Intuitive and easy to learn

Fully integrated with spreadsheet model
Build decision trees and influence diagrams directly in Excel
Graphs and reports customised using standard Excel features
Automatic formatting of influence diagrams and decision trees
Influence diagrams show results without being converted to a decision tree
Decision analysis results updated automatically as model is changed

Perform Sensitivity Analyses - one-way and two-way - on any value in decision tree or influence diagram
Use with @RISK for complete Monte Carlo simulation
Policy Suggestion Graph and Strategy Region Graph (Pro Only)
Easy to edit trees and diagrams
Generate Risk Profile graphs
True add-in, featuring toolbar interface, menu, Excel commands
Standard Excel formulas used for modelling
Probabilities automatically normalised in chance nodes
Influence diagrams can describe asymmetric trees
Access node information in spreadsheet cells
Advanced features include logic nodes, reference nodes, custom VBA utility functions, linked trees
True 32-bit application for Windows 98/NT
Designed to work with DecisionTools Suite

PrecisionTree Nodes

PrecisionTree allows you to build decision trees by defining nodes in Excel spreadsheets. Node types offered by PrecisionTree include:
Chance nodes
Decision nodes
End nodes
Logic nodes
Reference nodes

You can add PrecisionTree functions to any cell in a spreadsheet and can include arguments that are cell references and expressions - allowing great flexibility in defining decision models

Enter a Decision Tree Directly In Your Spreadsheet

In PrecisionTree, decision trees and influence diagrams are created directly in your spreadsheet. The example at the right shows square decision nodes, round chance nodes and triangular end nodes. For each branch in the tree there is a label, value, and if necessary a probability. For the Test chance node, for example, there are three possible results: No Structure, Open Structure or Closed Structure. Each branch has a value of 0, since there are no additional costs incurred or payments received based on the test results. The probability of each outcome occurring is 41%, 35% and 24% respectively. These values are typed directly in the spreadsheet.

See the Important Information Displayed in Your Decision Tree

With PrecisionTree, you’ll see the payoff and probability of each possible path through a tree. The screen at right shows a section of an oil drilling decision tree. Each end node lists the payoff and probability for each path through the tree. In this example, the payoff returned depends on the cost of testing, the cost of drilling and the amount of oil found. PrecisionTree determines the best decision to make at each decision node and marks the branch for that decision TRUE. PrecisionTree displays a great deal of information about your decision tree, giving you quick access if you need to make changes in your model.

Once your decision tree is complete, PrecisionTree’s decision analysis creates a full statistics report on the best decision to make and its comparison with alternative decisions.

Risk Profile

A decision analysis in PrecisionTree generates a Risk Profile. The Risk Profile compares the payoffs and risk of different decision options. The cumulative risk profile graph displays a cumulative distribution showing the probability of an outcome less than or equal to a certain value.

Sensitivity Analysis

Have you ever wondered which variables matter most in your decision? If so, you need PrecisionTree's sensitivity analysis options. During a sensitivity analysis, PrecisionTree modifies the values of the sensitivity variables you specify and records the changes in the expected value of the tree. For one-way sensitivity analyses, one variable is changed at a time. Reports generated by this analysis include one-way sensitivity graphs, tornado diagrams and spider graphs. The results of many one-way analyses can be compared on the same tornado diagrams and spider graphs. For two-way sensitivity analyses, two variables are changed simultaneously. Reports generated by this analysis include two-way sensitivity graphs and Strategy Region graphs (PrecisionTree Pro only). For those who need more sophisticated sensitivity analyses, PrecisionTree links directly to TopRank, Palisade Corporation's What-If Analysis Add-in.

Advanced Features

PrecisionTree includes many advanced analysis options:

Logic Nodes
- Logic nodes are a special type of node where the optimum branch is selected according to conditions the user defines. The name of this node derives from the fact that the pre-set conditions are usually phrased in a logic statement (using expressions such as "less than", "equal to", etc.). A logic node behaves like a decision node, but it selects the branch whose branch logic formula evaluates to TRUE as the logical (optimum) decision. The example at the right contains a variable Test Cost and a situation where you want to Test if the Test Cost is less than $13,000.

Reference Nodes
- Reference nodes can be used to reference a sub-tree. The sub-tree can be on any sheet in the workbook. Use reference nodes to simplify a tree, to reference the same sub-tree many times in a tree, or to build a tree that’s too large to fit on one spreadsheet. In the example at the right, the Drill Decision subtree is referenced by the Test/No Structure path. A diamond indicates a reference node.

Custom Utility Functions
- PrecisionTree offers a default exponential utility function. But, using VBA custom functions, you can easily construct your own custom utility function.

Linked Trees
- Linked trees allow the branch values for a decision tree to be linked to cells in an Excel model external to the tree. Each node can be linked to an Excel cell reference or range name. End node payoffs can be calculated by a detailed spreadsheet model. This powerful feature combines the strength of a decision tree for describing decision situations with the strength of a traditional spreadsheet model for calculating results.

PrecisionTree and @RISK - Perform Risk Analysis on Your Decision Trees

@RISK, Palisade Corporation's Risk Analysis and Simulation Add-In, is a perfect companion to PrecisionTree. @RISK, available separately or bundled with PrecisionTree in the DecisionTools Suite, allows you to quantify the uncertainty in any spreadsheet model using probability distribution functions. Then, at the click of a button, @RISK performs a Monte Carlo simulation of your model, analysing every possible outcome and graphically illustrating the risks you face.

Use @RISK to define uncertain (chance) events in your model as continuous distributions. Probability distributions can be applied to any uncertain value or probability in your decision trees and supporting spreadsheets. With this information, @RISK can run a complete Monte Carlo simulation of your decision tree, showing you the range of possible results that could occur.

PrecisionTree Pro

PrecisionTree comes in both a Standard and Professional version. PrecisionTree Pro has a number of additional features to provide you more advanced Decision Analysis capabilities. These features include:

Policy Suggestion Report
- During the decision analysis, PrecisionTree Pro also finds the optimum path in order to construct a policy suggestion report. The policy suggestion report is a reduced version of the decision tree that displays only the optimum decisions in your model.

Strategy Region Graphs -
PrecisionTree Pro can generate One-Way and Two-Way Strategy Region graphs. One-Way Strategy Region graphs display the expected values for each decision over the range of one variable. Two-Way Strategy Region graphs show you which decision is optimal over the range of two variables.

Use PrecisionTree with the Entire DecisionTools Suite

PrecisionTree was designed to work with our other DecisionTools Suite products @RISK, TopRank, RISKview, and BestFit. Take any model you have analysed in PrecisionTree and then use @RISK to perform a powerful Risk Analysis. Add @RISK probability distribution functions right in your existing decision tree. Take real-world data and use BestFit to find the distribution which best fits your data, or create your own distribution by drawing it in RISKview. Use them in @RISK to realistically represent uncertainty. Then run a full Monte Carlo simulation on your Decision Analysis model! You’ll have a distribution of possible results, along with the likelihood of them occurring, for the optimal decision identified by PrecisionTree. Then bring in TopRank to run a detailed What-If Analysis on the same tree. The same spreadsheet model, three powerful analyses - all with the DecisionTools Suite. With the DecisionTools Suite, you will be prepared to face the risks in any situation!

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