Steps for Using PrecisionTree Software to Do Decision Analysis (New Update 11/04/00)

Transcription

1 Steps for Using PrecisionTree Software to Do Decision nalysis (New Update /0/00) Important! efore we get to the steps, we want to introduce several notes that will help you do the steps. The steps and notes are are presented in an dobe PDF file. dobe PDF files use navigation tools that are different from the Web s browser system you were just using. We recommend that you begin by reviewing the section on PDF files. It explains how to use dobe s tools to navigate this PDF file (see the link below). Using the browser s ack button will close the PDF file and take you to the decision analysis discussion. Use the ack button after you have completed the PrecisionTree work. PDF Files This link explains how to work with PDF files. Use dobe s navigation tools to return to this page. Do not use the browser s ack button to navigate PDF files. General Notes Open/Save Files Formatting an Excel Spreadsheet Miscellaneous Notes This link provides general notes on how to use PrecisionTree. Use dobe s navigation tools to return to this page. Do not use the browser s ack button to navigate PDF files. This link shows how to open and save PrecisionTree files. Use dobe s navigation tools to return to this page. Do not use the browser s ack button to navigate PDF files. This link shows how to format an Excel spreadsheet when using PrecisionTree. Use dobe s navigation tools to return to this page. Do not use the browser s ack button to navigate PDF files. The steps provide the basics on how to use Palisade orporation s PrecisionTree software to draw a decision tree. Steps - provide the basics; the remaining steps use the basic information to add branches and complete the decision tree. The estimated time to complete the steps is 0 minutes for those with Excel experience. The general notes and guidelines will help you with the basics. Hyperlinks use formatting like this example: Hyperlink. Hyperlinks use bold text that is underscored and magenta in color. Points of emphasis use formatting like this example: Points of emphasis. Points of emphasis use bold text that is magenta in color. We will insert Notes icons throughout the document to provide additions and/or corrections. Double lick the icons to open them. Use the minus sign in the upper left corner to close them. The images below will not open or close. Notes Icon sample (closed) Notes box sample (open) Select the minus sign to close the box.

2 New: These reas Have hanged November, 00 This update includes the following: The file opens with dobe s Navigation Pane visible. (See the link, Working with dobe Reader s PDF Files to close the Navigation Pane.) Step s Figure D has been corrected. October 0, 00 This update includes the following: n audio link has been corrected. Step has been added. Information on navigating this PDF file was added. Some links were removed to improve navigation. recommendation to use dobe s navigation tools when using this PDF file was added.

3 * Working with dobe Reader s PDF Files Figure (this page) shows a PDF file with the Navigation Pane closed. Figure (next page) shows a PDF file with the Navigation Pane open. We recommend that you use the tools shown here to navigate these pages. Using your browser s ack button will close the PDF file and you will have to download it again. Navigation Pane Icon lick/select the icon to open and close the Navigation window. It will reveal a Table of ontents with links. Notes Icon Double lick the icon to open the Notes box. Select the minus sign in the upper left corner to close it. The icons may be color coded. djust Scale Use controls to adjust the scale of the image. Navigate Use controls to navigate the pages. Figure. Navigation Pane losed * Use dobe Reader version.0 or later for best results.

4 * Working with dobe Reader s PDF Files Figure (previous page) shows a PDF file with the Navigation Pane closed. Figure (this page) shows a PDF file with the Navigation Pane open. We recommend that you use the tools shown here to navigate these pages. Using your browser s ack button will close the PDF file and you will have to download it again. Navigation Pane Icon lick/select the icon to open and close the Navigation window. Select ookmarks to open the links to ontent headings. Figure shows that the ompleted Tree link was selected. To close the Navigation window, lick/select the Navigation Pane icon again. djust the Navigation Pane s width by hovering your mouse over the divider and moving it right or left. * Use dobe Reader version.0 or later for best results. Figure. Navigation Pane Open

5 General Notes for Using PrecisionTree Software. Following the asic Steps: The number of steps will vary depending on the decision tree s complexity. Steps include the basic steps to create a decision tree. dditional steps refer to the basics to complete the decision tree.. Determining the Layout of the Decision Tree: If you have a hand-drawn decision tree, look at its size and complexity as it branches out. ranching will affect which layout mode you use (Portrait/Vertical) or (Landscape/Horizontal). (With PrecisionTree running in Excel, Go to File Page Set-up Page Tab Landscape.). Using ell References: ell references such as ell refer to olumn, Row.. Using Your ommand ontrol Devices: lick, Select, and Enter all mean, Use one of your command-control devices (mouse, keyboard, voice-activated software, stylus, and the like) to perform the action indicated. For example, you will be selecting cells, buttons, and icons; you will be entering text and numbers in cells and dialog boxes.. utomatically alculating the Optimum Path: PrecisionTree calculates numerical results as data is entered into the spreadsheet. When the calculations are completed, the Optimum branch at a decision point (yielding optimal profit) is labeled TRUE. Those alternative branches that yield suboptimal performance are labeled FLSE.. Formatting: You may need to format your spreadsheet by adjusting columns to see the data you enter, and adjusting numerical data to reflect dollar amounts. ecause PrecisionTree uses colors to graphically present the decision tree, we suggest you use Excel s formatting options to distinguish between positive and negative numbers. If you need help formatting, review Formatting an Excel Spreadsheet. Use dobe s navigation tools to return to this page. Do not use the browser s ack button unless you want to close this file and return to the decision analysis discussion.. Working with Different Software Versions: The screen shots of computer screen images shown in these instructions may vary from what you see on your computer screen because of ongoing software updates. However, the basic instructions should be similar.

6 Opening & Saving a PrecisionTree File PrecisionTree is an add-in to Excel. To run PrecisionTree, you will need to have Excel installed on your computer. Steps and show how to open PrecisionTree from the Start menu. Step shows how to open PrecisionTree from within Excel. Steps and show how to open a PrecisionTree file. Step shows three ways to save a PrecisionTree file. ****************************** Step : Open PrecisionTree. To open PrecisionTree, Go to the Start utton (lower left corner of a P screen) Programs Palisade Decision Tools lick/select PrecisionTree for Excel {-bit}. This will open Excel and the first of two dialog boxes (Figure ).. ecause PrecisionTree is a macrodriven application, lick/select Enable Macros. The hourglass will briefly appear before the second Enable Macros dialog box opens.. ontinue to Step to open the second Enable Macros dialog box. Figure. Dialog ox to Enable Macros

7 Step : Enable Macros; Open Toolbars. Enabling Macros in Step produced an Excel screen with the DecisionTools toolbar, and it opened an Enable Macros dialog box (Figure ). DecisionTools Toolbar. lick/select Enable Macros. The hourglass will briefly appear and the screen will add the PrecisionTree toolbar above the DecisionTools toolbar (Figure ).. PrecisionTree saves its files with an.xls extension. If PrecisionTree is open, to open a file previously saved in PrecisionTree, go to Excel s File menu (upper left corner of a P screen) Open Your Directory of Files. lick/select a file (saved in Precision- Tree) with an.xls extension.. ontinue to Step to open a PrecisionTree file from within Excel. PrecisionTree Toolbar DecisionTools Toolbar Figure. Dialog ox to Enable Macros and Open the DecisionTools Toolbar Figure. Screen with PrecisionTree and DecisionTools Toolbars

8 Step : Open a PrecisionTree File Step shows how to open a PrecisionTree file from within Excel prior to opening PrecisionTree.. Go to Excel s File menu (upper left corner of a P screen) Open Your Directory of Files. lick/select a file (previously saved in PrecisionTree) with an.xls extension. The Enable Macros dialog box will open. Figure. Dialog ox to Load to PrecisionTree. lick/select Enable Macros. The hourglass will briefly appear and the file will open followed by another dialog box (Figure ). lick/select the Enter key (keyboard) or OK button (dialog box) to load PrecisionTree.. ontinue to Step to save a PrecisionTree file from within Excel. Step : Save a PrecisionTree File There are three ways to save a Precision- Tree file with an.xls extension: Save. Go to the File menu (upper left corner of a P screen) Save.. Use your keyboard and lick/select the ontrol key, followed by the S key.. lick/select the Save icon on the Excel toolbar (Figure ). Figure. Save Icon on Excel Toolbar

9 Formatting an Excel Spreadsheet djusting olumn Width. Hover the mouse in the gray column header area at the dividing line between columns (Figure ). The dividing line will change to a dark line with a double arrow.. Left lick on the line and move the mouse to the right or left to adjust the column width. Figure. djusting olumn Width Formatting Numbers in ells. Go to the Format menu and hold down the left side of the mouse. Scroll down to ells... and release the mouse. This will open the Format ells dialog box (Figure ). Select the Number tab.. Under ategory, Select urrency.. For Decimal places, lick the down arrow until a 0 appears in the window.. For Negative numbers, select the last option ($,). ecause PrecisionTree uses red to display "chance" outcomes, this negative number format ($,) will help to distinguish negative numbers. Figure. Format ells

10 Formatting an Excel Spreadsheet dding Notes to Your Spreadsheet Figure. Drawing Toolbar This is a Text ox with formatted text. To remove the border, go to the Drawing Toolbar (Figure ). Select the Line olor icon's No Line option. Figure. Text ox Figure Formatting Toolbar. If the Drawing Toolbar isn't visible, go to the View menu, Select Toolbars, and Scroll to the Drawing Toolbar.. You can add notes to your drawing by using the Text ox icon on the Drawing Toolbar shown in Figure.. Select the Text ox icon. Position it where you want to add a note. Left lick with the mouse. The cursor will change to a crosshair on the spreadsheet. Draw a Text ox (Figure ) by moving your cursor down and across the spreadsheet to form a rectangular or box shape.. Place the cursor in the Text ox and add text. You can format text by using Excel's toolbars (Drawing Toolbar - Figure, and Formatting Toolbar - Figure ). To determine what the formatting options are, go to Excel's actual toolbar (not the Figures) and hover your mouse over the icons. Icon names will appear.

11 Formatting an Excel Spreadsheet Printing to Fit the Page, Go to Excel's File menu. Select Print Preview. (For a shortcut, go directly to the Print Preview icon on Excel's main toolbar).. Select Setup to open the Page Setup dialog box (Figure ).. Select the Page tab.. Select an Orientation. For Scaling, Select Fit to page wide by tall to fit the image on one page. For the PrecisionTree example problem, Select Landscape. Figure. Page Setup Note:. Screen shots were taken from Microsoft Excel SR- version on a Windows operating system. Older and/or newer versions may vary in appearance.. For additional information, check Excel's Help menu. dding a Title. Follow Steps. and... Select the Header/Footer tab.. dd a Header, Footer, ustom Header, or a ustom Footer. Use the formatting options in the window to format the title.

12 Decision nalysis: ompleted Tree Sell Patent Outright $,00,000 $,00,000 We used PrecisionTree software to draw this decision tree. It represents $,0,000 Step I of the Four Step lgorithm 0.0% 0 identified in the Decision nalysis Software section. In the step-by-step Royalties Later FLSE Royalty mounts instructions that follow, we will show 0 $,00,000 how to create this decision tree. 0.0% 0 $,000,000 $,000,000.0% 0 $,000,000 $,000, % 0.0 $,000,000 $00,000 $00,000 ampaign TRUE Sales ($00,000) $,00, % 0. $,000,000 $,00, % 0. $,000,000 $,00,000 Succeeds 0.0% Marketing ampaign Options ($,000,000) $,00, % 0 $,000,000 $,000,000 $M ampaign FLSE Sales ($,000,000) $,00, % 0 $,000,000 $,000, % 0 $,000,000 $,000,000 uild In-House TRUE Using Existing Equipment 0 $,0,000 Sell Patent TRUE 0. $00,000 ($0,000) Fails.0% If Using Existing Equipment Fails ($,000,000) ($0,000).0% 0 $,000,000 ($,00,000) uy New Equipment/ds FLSE $M ampaign ($,00,000) ($00,000) 0.0% 0 $,000,000 $00, % 0 $,000,000 $,00,000

13 Decision nalysis: 0 0 tree # D E F G H I J K L Figure. Start of the Decision Tree 0 Step : Starting the Decision Tree. lick/select the New Tree icon (Figure ) on the PrecisionTree toolbar (Figure ). (To determine the name of an icon, hover your mouse over the icon and its name will appear.). lick/select ell in your spreadsheet. (We selected an arbitrary cell as the starting position of the tree.) Figure shows the label (tree #) and lue Triangle that will appear. This is the beginning stage of the decision tree. It will branch out as you add data and select node options (Red ircles, Green Squares).. lick/select the label (tree #) and the Tree Settings dialog box will open (Figure D).. ontinue to Step to fill-out the Tree Settings dialog box. Figure. New Tree Icon Figure D. Tree Settings Figure. PrecisionTree Toolbar

14 Decision nalysis: 0 0 D E F G H I J K L Step : Filling Out the Tree Settings Dialog ox. In the Tree Settings dialog box (Figure ), 0 - Highlight tree # in Tree Name and Enter. - For the Optimum Path drop down box, Select the down arrow and Maximum. - For the Utility Function Display drop down box, Select the down arrow and Expected Value. Figure shows the completed Tree Settings dialog box.. lick/select the Enter key (keyboard) or the OK button (dialog box) to close the Tree Settings dialog box.. lick/select the lue Triangle at the end of the branch.. ontinue to Step to create three decision branches. Figure. Tree Settings "efore" Figure. Tree Settings "fter"

15 Decision nalysis: 0 0 D E F G H I Step : Selecting the Green Square to reate Decision ranches. Selecting the lue Triangle in Step opened the Node Settings dialog box (Figure ).. ecause the example problem indicates there are three possible courses of action, you will create three branches. In the Node Settings dialog box, lick/select the Green Square. The Green Square indicates the decision maker must make a decision (one where there are no probabilities).. The Node Settings dialog box changes to Figure so you can enter data.. For Name, Highlight Decision and Enter Whether or Not to Market a Product. ecause the example problem involves three possible courses of action, for the # of ranches input box, Highlight and Enter. Figure shows the completed dialog box.. lick/select the Enter key (keyboard) or the OK button (dialog box) to close the Node Settings dialog box.. ontinue to Step to name the three branches. 0 Figure. Node Settings: Node Type Figure. Node Settings "efore" Figure. Node Settings "fter"

16 Decision nalysis: 0 0 D E F G H I Step : Naming the ranches branch TRUE 0 branch branch. lick/select the top branch to open the ranch Settings dialog box (Figure ).. In the ranch Name box, branch will be highlighted. Enter Sell Patent Outright (Figure ).. lick/select the Enter key (keyboard) or the OK button (dialog box) to close the ranch Settings dialog box.. ontinue with the other branches, naming them Royalties Later and uild In- House.. ontinue to Step to see the labels and to add data to the top branch. Do not worry about the TRUE and FLSE designations and color, and the s and 0s at this point in the process. They are default settings of the PrecisionTree software. Figure. ranch Settings "efore" Figure. ranch Settings "fter"

17 Decision nalysis: 0 0 D E F G H I Sell Patent Outright TRUE 0 Royalties Later uild In-House Step : Providing Data for the Sell Patent Outright ranch; hanging Defaults. ecause your tree will branch out as you add data, delete Rows and to make room for the growth. This will move the decision tree closer to the top of the spreadsheet (and the other rows will move up as well). To delete Rows and, place your mouse on the Row and Row tabs on the left side of the spreadsheet. Right lick with the mouse and Select Delete. The New Product label will now straddle ells and. You will need to do this to follow the ell references in later steps.. lick/select the default 0 in ell. Type/Enter (the amount the company can get by selling the patent rights outright). Other than formatting, this will complete the work for this branch, as the decision making process stops if the company sells the patent.. ecause PrecisionTree is an add-in to Excel, you can format cells using the same steps you use to format an Excel spreadsheet. If you need help with formatting, lick/select Excel's Help menu. oth Excel Help and ontents and Index provide information on formatting.. ontinue to Step to add to the Royalties Later branch. Step. refers to a default amount in ell. The locations we reference in these Steps apply to this example problem. They may change in other problems depending on the number of branches, decisions, data, formatting, and so on. Default amounts typically occur to the left of the lue Triangle. Default probabilities typically occur to the left of the lue Triangle and above the default amounts. (See Step )

18 Decision nalysis: 0 0 D E F G H I Sell Patent Outright TRUE $,00,000 $,00,000 $,00,000 Royalties Later uild In-House Step : Working with the Royalties Later ranch. Select the lue Triangle for the Royalties Later branch to open the Node Settings dialog box (Figure ). Select the Red ircle because there are three opinions for what the royalty amounts could be. This outcome is random, and the decision maker does not control the outcome.. The Node Settings dialog box changes (Figure ) so you can enter data.. For Name, Highlight hance and Enter Royalty mounts. ecause the example problem indicates there are three possible choices for the # of ranches, Highlight and Enter. (Figure ). Select the Enter key (keyboard) or the OK button (dialog box) to close the Node Settings dialog box.. ontinue to Step to name the branches. Figure. Node Settings: Node Type Figure. Node Settings: "fter" Figure. Node Settings: "efore"

19 Decision nalysis: 0 0 D E F G H Sell Patent Outright TRUE $,00,000 $,00,000 $,00,000 branch.% 0 Royalties Later FLSE Royalty mounts branch.% 0 branch.% 0 uild In-House Step : Naming the Royalties Later ranches. Select the top branch to open the ranch Settings dialog box (Figure ).. In the ranch Name box, branch will be highlighted. Enter (Figure ). The letter is arbitrary; a verbal description could have been used.. Select the Enter key (keyboard) or the OK button (dialog box) to close the ranch Settings dialog box.. ontinue with the other branches, naming them and. gain, and are arbitrary.. ontinue to Step to fill in data for the branches. Note that by default, the computer assigns equal probabilities to each path: three paths, hence the /% probability for each. If there were two paths, the probability for each would be 0%. If you change the probabilities, the sum of the probabilities must equal 00%. For example, /% + /% + /% = 00% 0% + 0% = 00% % + % + % = 00% Figure. ranch Settings "efore" Figure. ranch Settings "fter"

20 Decision nalysis: 0 0 D E F G H Sell Patent Outright TRUE $,00,000 $,00,000 $,00,000.% 0 Royalties Later FLSE Royalty mounts.% 0.% 0 uild In-House Step : Providing $ mounts for the Royalties Later ranches; hanging Defaults. lick/select the default 0 in ell. Type/Enter (the amount the company can get in royalties for this option). lick/select the default 0 in ell. Type/Enter (the amount the company can get in royalties for this option). ell will not change because the company will not get any royalties for option.. ecause PrecisionTree is an add-in to Excel, you can format cells using the same steps you use to format an Excel spreadsheet. If you need help with formatting, lick/select Excel's Help menu. oth Excel Help and ontents and Index provide information on formatting.. lick/select the default.% in ell. Type/Enter 0%. lick/select the default.% in ell 0. Type/Enter 0%. lick/select the default.% in ell. Type/Enter %. The sum of the percentages must 00%.. ontinue to Step to review the results of these changes. Step. refers to default amounts in ells,, and ell. The locations we reference in these Steps apply to this example problem. They may change in other problems depending on the number of branches, decisions, data, formatting, and so on. Default amounts typically occur to the left of the lue Triangle. Default probabilities typically occur to the left of the lue Triangle and above the default amounts.

21 Decision nalysis: 0 0 D E F G H Sell Patent Outright $,00,000 $,00,000 $,00, % 0. 0 $0 Royalties Later TRUE Royalty mounts 0 $,00, % 0. $,000,000 $,000,000.0% 0. $,000,000 $,000,000 uild In-House Step : Working with the uild In-House ranch. lick/select the lue Triangle at the end of the uild In-House branch to open the Node Settings dialog box (Figure ). Select the Red ircle because there are two possible outcomes for what will happen if the company builds the product in-house. (They will either succeed or fail, and there are probabilities for each option.). The Node Settings dialog box changes (Figure ) so you can enter data.. For Name, Highlight hance and Enter Using Existing Equipment. ecause the example problem indicates there are two possible outcomes if the company uses existing equipment, leave for the # of ranches. (Figure ). lick/select Enter key (keyboard) or the OK button (dialog box) to close the Node Settings dialog box.. ontinue to Step 0 to work with the Using Existing Equipment branch. Figure. Node Settings: "fter" Figure. Node Settings: Node Type Figure. Node Settings: "efore"

22 Decision nalysis: 0 0 D E F G Sell Patent Outright $,00,000 $,00,000 $,00, % 0. 0 $0 Royalties Later TRUE Royalty mounts 0 $,00, % 0. $,000,000 $,000,000.0% 0. $,000,000 $,000,000 branch 0.0% $0 0 $0 uild In-House FLSE Using Existing Equipment branch 0.0% 0 Step 0: Working with the Using Existing Equipment ranches 0. lick/select each branch label (one at a time). Figure 0 shows the dialog box that will appear. hange the labels to Succeeds (top) and Fails (bottom). If you need a refresher on changing labels, see Step. Use dobe's navigation tools to return to this page. Do not use the browser's ack button. (Step will show these results.) 0. lick/select the default 0% in ell. Type/Enter 0%. lick/select the default 0% in ell. Type/Enter %. The sum of the percentages must equal 00%. (Step will show these results.) 0. lick/select the default 0 in ell. Type/Enter a negative lick/select the default 0 in. Type/Enter a negative Use the Excel formatting option that shows negative currency numbers inside red parenthesis ($,000,000). This represents $ million the company will spend to make one run of one million units. The company will incur this cost whether it succeeds or fails. (Step will show these results.) 0. ontinue to Step to review a summary of what you have accomplished. Note that by default, the computer assigns equal probabilities to each path: two paths, hence the 0% probability for each. Figure 0. ranch Settings

23 Decision nalysis: 0 0 D E F G Sell Patent Outright $,00,000 $,00,000 $,00, % 0. 0 $0 Royalties Later TRUE Royalty mounts 0 $,00, % 0. $,000,000 $,000,000.0% 0. $,000,000 $,000,000 Succeeds 0.0% 0 ($,000,000) ($,000,000) uild In-House FLSE Using Existing Equipment 0 ($,000,000) Fails.0% 0 ($,000,000) ($,000,000) Step : Summarizing, at this point in the process you have accomplished the following: Step : Started a new decision tree Step : Filled out the Tree Settings dialog box Step : Worked with lue Triangle to open the Node Settings dialog box and to create the Green Square decision branches Step : Worked with the ranch Settings dialog box to name branches Step : Provided data for a branch Step : Worked with the lue Triangle to open the Node Settings dialog box and to create the Red ircle chance branches Step : Worked with the ranch Settings dialog box to name branches Step : hanged default settings Default amounts typically occur to the left of the lue Triangle. Default probabilities typically occur to the left of the lue Triangle and above the default amounts. (See Step ) These are the actions you will use to complete the decision tree. We will walk you through the remaining steps by referring to Steps -.

24 Decision nalysis: 0 0 D E F G Sell Patent Outright $,00,000 $,00,000 $,00, % 0. 0 $0 Royalties Later TRUE Royalty mounts 0 $,00, % 0. $,000,000 $,000,000.0% 0. $,000,000 $,000,000 Succeeds 0.0% 0 ($,000,000) ($,000,000) uild In-House FLSE Using Existing Equipment 0 ($,000,000) Fails.0% 0 ($,000,000) ($,000,000) Step : reating Green Square Decision Nodes. lick/select the lue Triangle at the end of the Succeeds branch to open the Node Settings dialog box. lick/select the Green Square and name it Marketing ampaign Options. The # of branches will stay at. lose the Node Settings dialog box. t this point, the company has two options: Label one branch $00,000 ampaign; label the other branch $M ampaign. (See Step for a review of creating decision branches. See Step for a review of naming branches. Use dobe's navigation tools to return to this page. Do not use the browser's ack button.). lick/select the lue Triangle at the end of the Fails branch to open the Node Settings dialog box. lick/select the Green Square and name it If Using Existing Equipment Fails. The # of branches will stay at. lose the Node Settings dialog box. t this point, the company has two options: Label one branch Sell Patent; label the other branch uy New Equipment/ds. (See Step for a review of creating decision branches. See Step for a review of naming branches. Use dobe's navigation tools to return to this page. Do not use the browser's ack button.). ontinue to Step to review the results and to proceed with more branch work.

25 Decision nalysis: 0 0 D E Step : hanging the Defaults Sell Patent Outright $,00,000 $,00,000 $,00, % 0. 0 $0 Royalties Later TRUE Royalty mounts 0 $,00, % 0. $,000,000 $,000,000.0% 0. $,000,000 $,000,000 $00,000 TRUE 0 0 ($,000,000) Succeeds 0.0% Marketing ampaign Options ($,000,000) ($,000,000) $M ampaign 0 ($,000,000) uild In-House FLSE Using Existing Equipment 0 ($,000,000) Sell Patent TRUE 0 0 ($,000,000) Fails.0% If Using Existing Equipment Fails ($,000,000) ($,000,000) uy New Equipment/ds 0 ($,000,000) (See Step if you need a refresher. Use dobe's navigation tools to return to this page. Do not use the browser's ack button.). lick/select the default 0 in ell D. Type/Enter and use formatting to show ($00,000). lick/select the default 0 in ell D. Type/Enter and use formatting to show ($,000,000). These negative numbers represent the cost of the campaigns. (Step will show the results.). lick/select the default 0 in ell D. Type/Enter $00,000. This will be a positive number to represent incoming money the company will get if it sells the patent. lick/select the default 0 in ell D. Type/Enter and use formatting to show ($,00,000). This will be a negative number to represent the cost of new equipment and ads. (Step will show the results.). ontinue to Step to review the results and to proceed with more branch work.

26 Decision nalysis: 0 0 D E Sell Patent Outright $,00,000 $,00,000 $,00, % 0. 0 $0 Royalties Later TRUE Royalty mounts 0 $,00, % 0. $,000,000 $,000,000.0% 0. $,000,000 $,000,000 $00,000 ampaign TRUE 0 ($00,000) ($,00,000) Succeeds 0.0% Marketing ampaign Options ($,000,000) ($,00,000) $M ampaign ($,000,000) ($,000,000) uild In-House FLSE Using Existing Equipment 0 ($,0,000) Sell Patent TRUE 0 $00,000 ($0,000) Fails.0% If Using Existing Equipment Fails ($,000,000) ($0,000) uy New Equipment/ds ($,00,000) ($,00,000) Step : Working with the ranches and the Red ircles (See Step if you need a refresher. Use dobe's navigation tools to return to this page. Do not use the browser's ack button.). lick/select the lue Triangle at the end of the $00,000 ampaign branch. When the Node Settings dialog box opens, lick/select the Red ircle, name it Sales, and change the # of branches to.. lick/select the lue Triangle at the end of the $M ampaign branch. When the Node Settings dialog box opens, lick/select the Red ircle, name it Sales, and change the # of branches to.. lick/select the lue Triangle at the end of the uy New Equipment/ds branch. When the Node Settings dialog box opens, lick/select the Red ircle, name it $M ampaign, and change the # of branches to.. ontinue to Step to review the results and to proceed with more branch work.

27 Decision nalysis: D E F G Sell Patent Outright $,00,000 $,00,000 $,00, % 0. 0 $0 Royalties Later TRUE Royalty mounts 0 $,00, % 0. $,000,000 $,000,000.0% 0. $,000,000 $,000,000 branch.% 0 0 ($,00,000) $00,000 ampaign TRUE Sales ($00,000) ($,00,000) branch.% 0 0 ($,00,000) branch.% 0 0 ($,00,000) Succeeds 0.0% Marketing ampaign Options ($,000,000) ($,00,000) branch.% 0 0 ($,000,000) $M ampaign FLSE Sales ($,000,000) ($,000,000) branch.% 0 0 ($,000,000) branch.% 0 0 ($,000,000) uild In-House FLSE Using Existing Equipment 0 ($,0,000) Sell Patent TRUE 0 $00,000 ($0,000) Fails.0% If Using Existing Equipment Fails ($,000,000) ($0,000) branch.% 0 0 ($,00,000) uy New Equipment/ds FLSE $M ampaign ($,00,000) ($,00,000) branch.% 0 0 ($,00,000) branch.% 0 0 ($,00,000) Step : hanging the Defaults (See Step if you need a refresher. Use dobe's navigation tools to return to this page. Do not use your browser's ack button.). In the Succeeds path, lick/select each branch for the $00,000 ampaign and change them to,, and.. In the Succeeds path, lick/select each branch for the $M ampaign and change them to,, and.. In the Fails path for uy New Equipment/ds, lick/select each branch for the $M ampaign and change them to,, and.. ontinue to Step to review the results and to proceed with more branch work.

28 Decision nalysis: D E F G Step : hanging the Defaults Sell Patent Outright $,00,000 $,00,000 $,00, % 0. 0 $0 Royalties Later TRUE Royalty mounts 0 $,00, % 0. $,000,000 $,000,000.0% 0. $,000,000 $,000,000.% 0 0 ($,00,000) $00,000 ampaign TRUE Sales ($00,000) ($,00,000).% 0 0 ($,00,000).% 0 0 ($,00,000) Succeeds 0.0% Marketing ampaign Options ($,000,000) ($,00,000).% 0 0 ($,000,000) $M ampaign FLSE Sales ($,000,000) ($,000,000).% 0 0 ($,000,000).% 0 0 ($,000,000) uild In-House FLSE Using Existing Equipment 0 ($,0,000) Sell Patent TRUE 0 $00,000 ($0,000) Fails.0% If Using Existing Equipment Fails ($,000,000) ($0,000).% 0 0 ($,00,000) uy New Equipment/ds FLSE $M ampaign ($,00,000) ($,00,000).% 0 0 ($,00,000).% 0 0 ($,00,000) (See Step if you need a refresher. Use dobe's navigation tools to return to this page. Do not use the browser's ack button.). In the Succeeds path, for the $00,000 ampaign, change the default percentage probabilities to 0% (), 0% (), and 0% (). hange the corresponding default 0s in the cells below to $,000,000 (), $,000,000 (), and $,000,000 ().. In the Succeeds path, for the$m ampaign, change the default percentage probabilities to 0% (), 0% (), and 0% (). hange the corresponding default 0s in the cells below to $,000,000 (), $,000,000 (), and $,000,000 ().. In the Fails path for uy New Equipment/ds, change the default percentage probabilities to % (), 0% (), and 0% (). hange the corresponding default 0s in the cells below to $,000,000 (), $,000,000 (), and $,000,000 ().. ontinue to Step to review the completed decision tree.

29 Decision nalysis: D E F G Sell Patent Outright $,00,000 $,00,000 $,0, % 0 0 $0 Royalties Later FLSE Royalty mounts 0 $,00, % 0 $,000,000 $,000,000.0% 0 $,000,000 $,000, % 0.0 $,000,000 $00,000 $00,000 ampaign TRUE Sales ($00,000) $,00, % 0. $,000,000 $,00, % 0. $,000,000 $,00,000 Succeeds 0.0% Marketing ampaign Options ($,000,000) $,00, % 0 $,000,000 $,000,000 $M ampaign FLSE Sales ($,000,000) $,00, % 0 $,000,000 $,000, % 0 $,000,000 $,000,000 uild In-House TRUE Using Existing Equipment 0 $,0,000 Sell Patent TRUE 0. $00,000 ($0,000) Fails.0% If Using Existing Equipment Fails ($,000,000) ($0,000).0% 0 $,000,000 ($,00,000) uy New Equipment/ds FLSE $M ampaign ($,00,000) ($00,000) 0.0% 0 The decision analysis discussion introduced Steps I - IV of a Four Step lgorithm. $,000,000 $00, % 0 -Step shows the ompleted Decision Tree that corresponds to Step I. $,000,000 $,00,000 Step : Reviewing the ompleted Decision Tree -Step will determine and display the Optimum Path that corresponds to Step II. -Step will determine and display the Risk nalysis that corresponds to Step III. (This will be available in a future update.) -Step will address the Sensitivity nalysis that corresponds to Step IV. (This will be available in a future update.)

30 Decision nalysis: D E F G Step : Identifying the Optimum Path The Optimum Path is the strategy (plan) for how we should behave. It is based on this criteria: We will always select the alternative that maximizes our expected profit (reasoned out or opinion average profit).. To identify the Optimum Path, lick/select the Decision nalysis icon (Figure ) on the PrecisionTree toolbar (Figure ). Decision nalysis dialog box will open (Figure ).. Select the reports and profiles you want to generate (Figure ). Make sure that Optimal hoice Only option is selected in the Initial Decision section on the right.. lick/select the Enter key (keyboard) or the OK button (dialog box) to close the Decision nalysis dialog box. Figure D shows the decision tree before PrecisionTree generates the Optimum Path (Figure E). Figure. Decision nalysis Icon Figure. PrecisionTree Toolbar Figure. Decision nalysis Dialog ox

31 Decision nalysis: D E F G Sell Patent Outright $,00,000 $,00,000 $,0, % 0 0 $0 Royalties Later FLSE Royalty mounts 0 $,00, % 0 $,000,000 $,000,000.0% 0 $,000,000 $,000, % 0.0 $,000,000 $00,000 $00,000 ampaign TRUE Sales ($00,000) $,00, % 0. $,000,000 $,00, % 0. $,000,000 $,00,000 Succeeds 0.0% Marketing ampaign Options ($,000,000) $,00, % 0 $,000,000 $,000,000 $M ampaign FLSE Sales ($,000,000) $,00, % 0 $,000,000 $,000, % 0 $,000,000 $,000,000 uild In-House TRUE Using Existing Equipment 0 $,0,000 Sell Patent TRUE 0. $00,000 ($0,000) Fails.0% If Using Existing Equipment Fails ($,000,000) ($0,000).0% 0 $,000,000 ($,00,000) uy New Equipment/ds FLSE $M ampaign ($,00,000) ($00,000) 0.0% 0 $,000,000 $00, % 0 Figure D: Decision Tree efore Optimum Path is Generated $,000,000 $,00,000 Note: This decision tree was corrected on November, 00. It shows all of the values.

32 Decision nalysis: $,0,000 uild In-House 0.0% 0.0 $,000,000 $00,000 $00,000 ampaign TRUE Sales ($00,000) $,00, % 0. $,000,000 $,00, % 0. $,000,000 $,00,000 Succeeds 0.0% Marketing ampaign Options ($,000,000) $,00,000 TRUE Using Existing Equipment 0 $,0,000 Sell Patent TRUE 0. $00,000 ($0,000) Fails.0% If Using Existing Equipment Fails ($,000,000) ($0,000) Figure E: Optimum Path The Optimum Path corresponds to Step II of the Four Step lgorithm. It displays our decision making strategy for the new product. When you generated reports in Step., PrecisionTree automatically calculated which part of the decision tree represented the Optimum Path and displayed it as a separate report. (PrecisionTree names this report, "Policy Suggestion.") Step (on Risk nalysis) will be added in a future update. Step (on Sensitivity nalysis) will be added in a future update.

33 Summary of Steps for Using PrecisionTree Software to Do Decision nalysis The list below summarizes the steps you took to do the example problem. Steps provided the basics on how to use Palisade orporation s PrecisionTree software to draw a decision tree. The remaining steps used the basic information to add branches and complete the tree. To link to the different steps, use dobe s navigation tools. Do not use the browser s ack button until you are ready to close the file and return to the decision analysis discussion. Step Step Starting the Decision Tree Filling Out the Tree Settings Dialog ox Step Selecting the Green Square to reate Decision ranches Step Step Naming the ranches (using the ranch Settings Dialog ox) Providing Data for a ranch; hanging Defaults Step Working with a ranch (lue Triangle, Node Settings, and Red ircle ) Step Step Step Step 0 Step Naming a ranch (using the ranch Settings Dialog ox) Providing Data for a ranch; hanging Defaults Working with a ranch Working with ranches Summarizing ccomplishments Step reating Green Square Decision Nodes Step Step Step Step Step Step Step Step Interactive Tutorial hanging Defaults Working with ranches and Red ircles hanging Defaults hanging Defaults Reviewing the ompleted Decision Tree Identifying the Optimum Path Reviewing the Risk nalysis (future update) ddressing the Sensitivity nalysis (future update) Now that you have completed the decision tree, you may want to look at Palisade orporation s interactive tutorial on PrecisionTree. It will reinforce the basic steps above, as well as present advanced steps. The interactive tutorial will download as a zipped file (0 minutes on a K modem). Run a virus check on the file before opening it. Follow the prompts to unzip the file (with a program like WinZip). Double lick on the executable file (ptreetut.exe) to run the tutorial.