Topics covered: Decision Tree Diagram
• Meaning.
• Advantages and disadvantages.
• Decision tree diagram.
Bangalore Property Ltd. (BPL) has been experiencing a slowdown in their sales revenue (20 % fall between 2018 and 2020) due to various internal and external factors. The management of BPL has been exploring the following growth options. Currently BPL constructs properties for commercial use (hotels, offices, malls, schools, etc.) in Bangalore, Mumbai and Goa.
Option 1: Do nothing (continue with the current business- commercial construction with more promotions and discounts)
Option 2: Venture into residential property along with commercial property.
Option 3: Construct only residential property
| Options | Costs | Probability of success and estimated revenue (INR) | Probability of failure and estimated revenue (INR) |
| Option 1: Do nothing (Continue with current business- commercial construction) | Nil | 0.4 and INR 45,00,00,00 | 0.6 and INR 32,00,00,00 |
| Option 2: Venture into residential property along with commercial property | INR 25,00,00,00 | 0.5 and INR 53,00,00,00 | 0.5 and INR 35,00,00,00 |
| Option 3: Construct only residential property | INR 15,00,00,00 | 0.3 and INR 32,00,00,00 |
0.7 and INR 22,00,00,00 |
Questions:
a) Using the information given in the table 1, construct a fully labelled decision tree diagram, calculate expected outcome for each option, and recommend BPL the best option based on your calculation. Show all your working. [8 marks]
b) Identify and explain two benefits of using decision tree diagram as a planning tool for BPL. [4 marks]
c) Identify and explain two limitations of using decision tree diagram as a planning tool for BPL. [4 marks]
