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The steps involved in draw'ing a decision tree are stated below:

  1. Identify all decisions to be made and the order in which they must be made.
  2. Identify the chance events that can occur after each decision.
  3. Develop a tree diagram showing the sequence of decisions and chance events. The tree is constructed starting from left and moving towards right. The square box denotes a decision point at which the available strategies are considered. The circle represents the chance Node or Event, the various state of nature or outcomes emanate from this chance event.
  4. Obtain a probability estimate of the chances of each outcome's occurrence.

The steps to create a decision tree diagram manually are:

  1. As a starting point for the decision tree, draw a small square around the center of the left side of the paper.
  2. If the description is too large to fit the square, use legends by including a number in the tree and referencing the number to the description either at the bottom of the page or in another page
  3. Draw out lines (forks) to the right of the square box. Draw one line each for each possible solution to the issue, and describe the solution along the line.
  4. Keep the lines as far apart as possible to expand the tree later.
  5. Illustrate the results or the outcomes of the solution at the end of each line. If the outcome is uncertain, draw a circle.
  6. If the outcome leads to another issue, draw a square.
  7. If the issue is resolved with the solution, draw a triangle.
  8. Describe the outcome above the square or circle, or use legends, as appropriate.
  9. Repeat steps 2 through 4 for each new square at the end of the solution lines, and so on until there are no more squares, and all lines have either a circle or blank ending.
  10. The circles that represent uncertainty remain as they are. A good practice is to assign a probability value, or the chance of such an outcome happening.
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Q: Steps involved in decision tree analysis?
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In a traditionally drawn decision tree a circle represents?

Short answer: a circle represents a "chance node," meaning a chance to which an Expected Monetary Value (EMV) may be assigned to calculate the most likely pay-off. Explanation: according to the PMBOK Guide, 4th Ed. (pgs. 298-299), the inputs to this node are scenario probability and the EMV (expected monetary value) assigned to that chance node, from the decision node (denoted as a square on a decision tree). A chance node leads to a "net path value," otherwise known as a computed value or solution set (represented by a triangle on a decision tree). A decision tree of this type is one of the tools used to determine quantitative risk analysis used to reach a computed optimal solution using probability distributions as a basis.


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