Decision tree analysis Essay

finding corner analytic thinking cognize as an analytical tool applied to purpose-making under condition of uncertainty, as rise as clarifying where in that location be some(prenominal) possible outcomes for various elections and round outcomes ar dependent on previous outcomes. yet, conclusion tree volition present as a plat by showing the kin among possible courses of action, possible events and the potential outcomes for distributively course of action in the decision (Drury, 2012). So decision tree analytic thinking is useful for merchant navy c anyer to understand in what direction their chance events are and what their nurses in terms of shekels and terminationes are for all(prenominal) of the two tooling alternatives, overly visualize the outcomes of different prospects in vagabond subscribe to better decision under uncertainty Strengths of decision tree analysisDecision tree analysis go away show all the alternatives, probabilities, be and the pos sible outcomes that are not even consider by the company. The company can add the possible scenario into decision tree plot, through the diagram can calculate the pass judgment revalues and a chance dispersion in to a greater extent multifactorial situations and the attributes can be chosen in any desired order (Kirkwood, 2002). Weaknesses of decision tree analysis except decision tree analysis brings sequential decisions and class-overlap problem that including categorical multivariate with different number of levels, and the information gain in decision tree analysis are biased in favour of those attribute with more levels. Also correlated data and complex production rules allow slide by in decision tree analysis, it can get very complex particularly if many values are uncertain and/or if many outcomes are linked (Kirkwood, 2002). merchant navy industry backgroundMerchant navy industry plays an important role in both house servant trade and international trade by transpor ting goods or passengers via sea to all around the world. There are different types of transportation system proceeds and kinds of freight in order to serve different needs including feeder vessel, tankers, container ships, loudness carries and specialist ships (World cargo ships Council, 2014). According to china Daily Information Co. (2012), there is high demandin merchant navy industry payable to freight transport capacity and loading volumes steadily rising in the moment. Therefore, it is important for merchant navy company to invest in innovative exaltation service to cope with the demand. troupe Background china Shipping (Group) Company chinaware Shipping (Group) Company is one of the largest transit companies in mainland china with approximately 47,000 employees worldwide. It was incorporated as international exaltation key out since 1997 and operates under the direct administration of Council of the Peoples Republic of chinaware. Mr. Li Shaode is the chairman o f the company and it has over 100 branches across different regions and countries, also is headquartered in Shanghai, china. The another five holding companies owned by China Shipping (Group) Company are located in Hong Kong, north America, Europe, atomic number 34 Asia and West Asia. The core business activities of China Shipping (Group) include transit of oil tankers, special cargo ship passenger ships and container vessels as well as other related businesses like terminal management, finance and investment, engineering, corporate logistics, shipping agency, air cargo forwarding, container manufacturing, human resources, trading and information technology (China Shipping, 2012). Case studyChina Shipping (Group) Company currently wants to shape whether to commercialize bare-ass shipping service now. The trade management estimated that if performs a foodstuff study (at a cost of 30,000), there is a 60% chance that the study entrust return in favorable results (referred to as a topical anaesthetic success) and a 40% chance that the study ordain return in unfavorable results (referred to as a local anaesthetic chastisement). If a local success is spy, there is an 80% chance that new shipping service exit be national success. If a local failure is observed, there is tho a 30% chance that new shipping service will be national success. The grocerying management thinks that grocery store shipping new service nationally successful that the evaluate earningss (excluding the cost of the merchandise study) will be 1,600,000 however if the commercialize shipping new service nationally failure because it pass judgment loss of 700,000(excluding the cost of the securities industry study). However absence seizure of commercialize study, there are equal chances of national success and national failure later on if China Shipping (Group) Company decide to market nationally.Therefore now the marketing management has to determine the best strategy tha t China Shipping (Group) Company should adopt. ExcelAccording to the decision tree above, the optimal decision for China Shipping (Group) Company is to carry out test market and indeed market nationally if national success then the company will have return in anticipate watch of 654,000 compared to do not conduct test market only have expect profit of 450,000. Sensitivity analysisAssuming the opportunity of national success after the market study will decrease by 15% and the probability of national success without market study will increase by 10%. If a local success is observed, the new probability will decrease from 80% to 65% that new shipping service will be national success. If a local failure is observed, the new probability will decrease from 30% to 15% that new shipping service will be will be national success. However absence of market study and immediately market nationally, the new probability will increase from 50% to 60% to be national success. According to the ae sthesia analysis above, after market study and market nationally the expected monetary value (EMV) of local success will decrease from profit 1,110,000 to 765,000 compared to the tail case however the expected monetary value (EMV) of and market nationally after local failure will remain the resembling as loss of 30,000 compared to the base case. The final expected monetary value (EMV) of conduct test market decision will have an expected profit of 447,000 compared to the base case have 654,000. However absence of market study and whether market nationally, the final expected monetary value (EMV) of local success will increase from profit 450,000 to 680,000 compared to the base case.Comparing the decision of conduct or do not conduct test market from the new probabilities, China Shipping (Group) Companys optimal decision is do not conduct test market and then market nationally then the expected profit will be 680,000. However according to the base case, China Shipping (Group) Compa ny will only get the expected profit of 654,000 after conduct test market and market nationally. Therefore, with the variety shows will allow the marketing management sees the impact of sensitivity analysis and compare to the base case. It allows the company to understand the overall decision whether market new shippingservice nationally with or without market study. Through sensitivity analysis, the company know that the value of the probabilities are delicate and it will affect the expected profit and decision of the company market the new shipping service with or without test market. ConclusionTo conclude, if a small change in the value of one of the causes a change in the recommended decision alternative, the company will have different outcome. However, the expected value is highly sensitive to the changes of probabilities and it will have significant answer on the decision making of the company. Therefore the expected values of each decision are evaluated to determine optim al model in order for company to do decision making. Decision tree is a diagram that shows the possible courses of actions, the potential event which is states of nature for each outcome unitedly with the potential outcomes and associated possibilities. It is a useful analytical tool for carrying range of alternative courses of actions and the possible outcomes, also allow company to understand the uncertainty in decision making (Drury, 2012). Therefore, decision tree analysis is important for China Shipping (Group) Company to understand the how the different probabilities will affect the expected value under hazard and uncertainty in order to make optimal decision in the investment. RecommendationFrom the decision tree analysis above carried out, it suggested China Shipping (Group) Company have to understand the risk and uncertainty in order to choose the optimal decision in the investment. However comparing the scenario to base case, if a local success is observed and the new pr obability will be 65% that new shipping service will be national success if a local failure is observed and the new probability will be 15% that new shipping service will be will be national success. Absence of market study and immediately market nationally, the new probability will be 60% of national success. It showed that with the new probabilities, China Shipping (Group) Companys optimal decision is do not conduct test market and then market nationally then the expected profit will be 680,000. However according to the base case, China Shipping (Group) Company will only get the expected profit of 654,000 after conduct test market and market nationally. Therefore, it suggested that China Shipping (Group) Company to look into theprobabilities of each decision and the expected value from its probabilities in order to maximize the investment with optimal decision.List of referencesDrury, C. (2012) steering and cost accounting. 8th edn. Andover Cengage Learning, pp. 278-292. World Sh ipping Council. (2014) About the industry. online Available at http//www.worldshipping.org/about-the-industry. Accessed 31 environ 2014. China Daily Information Co. (2012) China leads in shipping industry. online Available at http//www.chinadaily.com.cn/business/2012-08/04/content_15644653.htm. Accessed 29 March 2014. China Shipping. (2012) Company Profile. online Available at http//www.cnshipping.com/en/aboutus/companyprofile/index.shtml. Accessed 29 March 2014. Kirkwood, C.W. (2002) Decision Trees. online Available at http//vserver1.cscs.lsa.umich.edu/spage/ONLINECOURSE/R4Decision.pdf. Accessed 31 March 2014. BibliographyLucey, T.(2003). Management and cost accounting. fifth edn. London Cengage. pp. 321-343. Pannell, David J.(2013). Sensitivity analysis strategies, methods, concepts, examples. online Available at http//dpannell.fnas.uwa.edu.au/dpap971f.htm.Accessed 31 March 2014.