{"id":53896,"date":"2026-04-03T11:45:21","date_gmt":"2026-04-03T11:45:21","guid":{"rendered":"https:\/\/certifeka-edu.com\/programs\/finance-for-strategic-managers-accounting-module-2\/lessons\/lesson-2-decision-tree-analysis-3-2\/"},"modified":"2026-04-03T11:45:21","modified_gmt":"2026-04-03T11:45:21","slug":"lesson-2-decision-tree-analysis-3-2","status":"publish","type":"lesson","link":"https:\/\/certifeka-edu.com\/ar\/programs\/executive-financial-analysis-module-ucam-university\/lessons\/lesson-2-decision-tree-analysis-3-2\/","title":{"rendered":"Lesson 2: Decision tree analysis"},"content":{"rendered":"
Decision trees combine the concept of Expected Monetary Value with the concept of joint probability.<\/h5>\n
This approach is useful when the possible outcomes of a decision and their probabilities are arising in sequence, as a result of risks<\/h5>\n
Decision tree analysis \n<\/h3>\n
A contractor is faced with a choice that the client has offered: a Firm Fixed Price contract with the contract price of $100,000 and a “no liquidated damages” clause; or with the contract price of $115,000 and a “liquidated damages” clause.<\/h5>\n
Liquidated damages will be $50,000 if the schedule is not met.<\/h5>\n
The contractor knows from experience that there is a 5% chance of missing the schedule, a 60% chance that his cost will be $90,000 and a 40% chance his cost will be $80,000.<\/h5>\n
The decision to take the contract without the liquidated damages clause contains only the cost risk, as there is no impact if the contractor is late.<\/h5>\n
Here, in order to take into account the revenue (contract price) and cost, the outcomes need to be expressed as profit.<\/h5>\n
Based on the EMV, the contractor should choose the contract with the liquidated damages clause.<\/h5>","protected":false},"comment_status":"open","ping_status":"closed","template":"","class_list":["post-53896","lesson","type-lesson","status-publish","hentry"],"yoast_head":"\nLesson 2: Decision tree analysis - Certifeka-edu<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/certifeka-edu.com\/ar\/programs\/executive-financial-analysis-module-ucam-university\/lessons\/lesson-2-decision-tree-analysis-3-2\/\" \/>\n<meta property=\"og:locale\" content=\"ar_AR\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Lesson 2: Decision tree analysis - Certifeka-edu\" \/>\n<meta property=\"og:description\" content=\"Lesson 2: Understanding Business Risk Decision tree analysis Decision trees combine the concept of Expected Monetary Value with the concept of joint probability. 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