SAB9#132&133_Decision_Tree_Example & Plan_Risk_Responses

SAB9#132&133_Decision_Tree_Example & Plan_Risk_Responses

1. Decision tree: You should know what a decision tree is and be able to calculate a simple one from provided data

2. A decision tree takes into account future events in making a decision today

3. With a decision tree, you could evaluate the costs and benefits of several risk response at once to determine which is the best option

4. It envolves mutual exclusivity.

5. Example

   • A company is trying to determine if prototyping is worthwhile on the project. They have come up with the following impacts of whether the equipment works or fail. Based on the information provided in the diagram, what is the expected monetary value of each option? Which is the cheaper option to prototype or not to prototype?

6. Answer

   • Setup cost of prototyping , spend money on prototyping. Taking into account only the one future event of whether the equipment works or fails, the decision tree reveals that it would be cheaper to do the prototyping. The expect monetary value of prototyping is $242,000; the expect monetary value of not prototyping is $315,000
   • EMV = P X I P = Simply probability I = times impact
     • EMV= Expected Monetary Value

7. Plan Risk Response

   • Quantitative risk analysis, qualitative risk analysis and risk response planning do not end once you begin work on a project, the planning is iterative.
   • Do something to eliminate the threats before they happen
   • Do something to make sure the opportunities happen
   • Decrease to probability and/or impacts of threats
   • Increase the probability and/or impacts of opportunities
   • Remaining threats
     • Do something if the risk happens (contingency plan)
     • Do something if contingency plans are not effective or are not partially effective (fallback plans)

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