A5.15 Decision trees and real options analysis illustrate more complex alternative options and risks over time, especially when decisions are sequential. They can be used to illustrate alternative scenarios where key external risks are likely. They can also be used to clarify alternatives where decisions taken are either irrevocable or expensive to reverse. Where information is likely to increase over time this can illustrate the value of delaying decisions or leaving options open by making smaller decisions now that allow for larger decisions later.
A5.16 Decision trees provide a structure for calculating expected values in complex situations. They can be used to map out and understand the sequence of actions, decision points and events along an activity's path. Decision trees require that probabilities are either known or can be reasonably estimated. They can also be populated with information on costs and benefits.