Looking at the options listed above, you can start building the decision trees as shown in the diagram. Stay with the legacy software: If the company decides to stay with the legacy software, the associated cost is mainly maintenance and will amount to $100,000. īuy the new software: To buy the new software, the associated cost is $750,000.Confusion reigns in the meeting room with stakeholders pointing out negative risks for each option!!! Building the Decision Treeīuild the new software: To build the new software, the associated cost is $500,000.
The stakeholders supporting the upgrade of the software are further split into two factions: those that support buying the new software and those that support building the new software in-house. Some influential stakeholders believe that by upgrading this software your organization can save millions, while others feel that staying with the legacy software is the safest option, even though it is not meeting the current company needs. Suppose your organization is using a legacy software. The simplest way to understand decision trees is by looking at a Decision Tree analysis example. Compute the Expected Monetary Value for each decision path.Assign monetary value of the impact of the risk when it occurs.Assign a probability of occurrence for the risk pertaining to that decision.Document a decision in a decision tree.To use Decision Tree Analysis in Project Risk Management, you need to:
Risk management is a necessary component of project management To understand how to calculate Expected Monetary Value for simple situations, read the Calculating the Expected Monetary Value (EMV) article.
In this article, we’ll look at a Decision Tree analysis example.
For the PMP exam, you need to know how to use Decision Tree Analysis to make decisions in Project Risk Management. Using an EMV decision tree is a recommended Tool and Technique for Quantitative Risk Analysis. Calculating the Expected Monetary Value (EMV) of each possible decision path is a way to quantify each decision in monetary terms. Business or project decisions vary with situations, which in-turn are fraught with threats and opportunities.