Explain why decision trees are described as a scientific decision-making tool.

They force the possible outcomes, their probabilities and their financial values to be set out explicitly and compared by calculation rather than by feel.

State the formula for the expected value of a chance node.

Expected value = the sum of each outcome's probability multiplied by its financial value.

Explain why the probabilities leaving a single chance node must add up to 1.

The branches must cover every possible outcome of that event, and one of them is certain to happen.

An option gives a 0.6 chance of a £500,000 return and a 0.4 chance of a £100,000 return. Calculate its expected value.

The expected value is £300,000 plus £40,000, which is £340,000.

WJEC A-Level Business 601-5238-2

Enterprise and Starting a Business

Topic overview Enterprise and the entrepreneur Stakeholders in a business Business plans and sources of support Legal structures of business The public and private sectors Business location Sources of finance for a new business Business revenue, costs and profit

Markets and Market Research

Topic overview Types of market Market size, market share and market trends Market segmentation The degree of competition in a market Perfect competition and monopolistic competition Oligopoly and monopoly Consumer protection Demand and the demand curve Supply and the supply curve Market equilibrium and changes in price and quantity Price and income elasticity of demand Inferior, normal and luxury goods The value of market research Primary market research Secondary market research Qualitative and quantitative data Sampling and avoiding bias

Marketing

Topic overview Market orientation, product orientation and asset-led marketing The marketing mix Product and the product portfolio Branding, USP and differentiation The product life cycle Extension strategies The product life cycle and cash flow The Boston matrix Pricing strategies Choosing the right pricing strategy Promotion: above the line and below the line Place and distribution channels The marketing mix in different contexts and global marketing New technology in marketing

People in Business

Topic overview The flexible workforce New technology and changing working practices Workforce planning The recruitment process, job analysis and job descriptions Internal and external recruitment Methods of selection Training Appraisal Labour productivity, absenteeism and labour turnover Organisational design and structures Delegation, empowerment and delayering Motivation theories Financial and non-financial methods of motivation Management and management by objectives Leadership styles and theories Employment rights, duties and equal opportunities Trade unions, conflict and dispute resolution

Operations Management

Topic overview Added value Job, batch and flow production Choosing the right method of production Productivity Capacity utilisation New technology in operations Lean production and kaizen Just-in-time and cell production Quality control and quality assurance Total quality management Stock control and stock control diagrams Purchasing and working with suppliers Innovation, research and development Internal economies of scale External economies of scale Diseconomies of scale and the survival of small firms

Business Finance and Accounts

Topic overview Internal sources of finance Loans, overdrafts and trade credit Share capital and venture capital Leasing and debt factoring Choosing an appropriate source of finance Finance for entrepreneurs and SMEs in Wales Revenue, costs and profit Types of cost Contribution and break-even Break-even charts and the margin of safety Budgets and budgeting Cash flow forecasting Improving cash flow The income statement Gross and net profit margins

Business Analysis and Decision-Making

Strategy and Implementation

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Managing Change and Risk

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The External Environment

Topic overview Government and the framework for business The economic environment Social and demographic change Technology and business Business ethics and corporate social responsibility The legal environment Business and the environment

Global Business

Topic overview International trade and protectionism Globalisation and its causes Global growth strategies and multinationals The European Union and the euro

Business Analysis and Decision-Making

Decision trees

2 things to know
A2 Unit 3

Overview

Decision tree, formula for the expected value of a chance node and main weakness of relying on estimated probabilities.

What you need to know

Answer each one before you reveal it.

Your recallNot started

Key term

What is a decision tree?

Key term

State what a square and a circle represent on a decision tree.

Questions from this subtopic

Each one with the model answer underneath.

1
What is a decision tree?
Model answer
A decision tree is a diagram that maps the options open to a business, the possible outcomes of each, and the probability and financial value of every outcome.
2
State what a square and a circle represent on a decision tree.
Model answer
A square is a decision point where the business chooses between options, and a circle is a chance node where the outcome depends on probability.
3
Explain why decision trees are described as a scientific decision-making tool.
Model answer
They force the possible outcomes, their probabilities and their financial values to be set out explicitly and compared by calculation rather than by feel.
4
State the formula for the expected value of a chance node.
Model answer
Expected value = the sum of each outcome's probability multiplied by its financial value.
5
Explain why the probabilities leaving a single chance node must add up to 1.
Model answer
The branches must cover every possible outcome of that event, and one of them is certain to happen.
6
An option gives a 0.6 chance of a £500,000 return and a 0.4 chance of a £100,000 return. Calculate its expected value.
Model answer
The expected value is £300,000 plus £40,000, which is £340,000.

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Enterprise and Starting a Business

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