A decision tree can be either a predictive tool or a descriptive tool, depending on its application. In either instance they are constructed the same way and are always used to visualize all possible outcomes and decision points that occur chronologically. Decision trees have three main parts, nodes, branch nodes, and leaf nodes. In more less technical jargon, a node is a starting point, a branch node is a question needing an answer, and a leaf node is a possible answer (which can lead to another question).

Typical Uses

Most commonly decision trees are used in the financial world for things like loan approval, portfolio management, and spending. Another common usage is product development, when examining the viability of a new product, or new market for a current product.

Best Practices

• Start your tree. Draw a rectangle near the left edge of your page; this is your first node. In this rectangle write the first question or a criterion that leads to a decision.
• Add branches. For every possible alternative draw a separate line that begins at your node and moves away toward the right of your page. Using a loan approval process as an example, the first node may have been "Income", and the associated branches might be <$50K, $51K - $100K, >$101K.
• Add some leaves. The bulk of your decision tree will be leaf nodes, which is a fancy way of saying questions or criteria that occur after the initial node. At the end of each branch add a leaf node. Fill each of these leaf nodes with another question or criteria.
• Add more branches. Repeat the process of adding a branch for each possible alternative leading from a leaf. Label each branch just as before.
• Complete the tree. Continue adding leaves and branches (rectangles and lines) until every question or a criterion has been resolved and you arrive at the outcome.
• Terminate a branch. When you arrive at an outcome, add a small triangle to the end of the branch. Just after the triangle you can write down the results of that branch in plain text.
• Verify accuracy. Consult with all stakeholders to verify accuracy.