IBBusinessDPBusiness ManagementHLRevision Notes8. Pre Released StatementsPre Released Statement: 2026Business Management Toolkit: Decision Trees & Force Field Analysis

Business Management Toolkit: Decision Trees & Force Field Analysis (DP IB Business Management): Revision Note

Lisa Eades

Written by: Lisa Eades

Reviewed by: Steve Vorster

Updated on

Decision trees

Examiner Tips and Tricks

A decision tree is a quantitative method used to trace the possible outcomes of a business decision in order to identify the most financially beneficial option

  • Research-based estimates and probabilities are used to calculate likely outcomes

  • The expected monetary value (EMV) can be calculated to compare different strategic options

  • The net gain from each decision can be identified and used to assess whether an investment is worthwhile

How Abraca (ABC) could use decision trees

  • ABC’s senior managers could use decision trees to help make important strategic decisions such as:

1. Expanding e-waste processing

  • Comparing the high potential profits from recovering gold and precious metals

  • Against the risks of falling metal prices or low supply of e-waste

2. Investing in concrete factory efficiency

  • Comparing the cost of upgrading production facilities

  • Against long-term savings from lower energy use and higher productivity

3. Entering new geographic markets

  • Assessing the profitability of expanding concrete production into emerging economies

  • Compared with the risks of political instability or weaker construction demand

Evaluation of using decision trees

Advantages

Disadvantages

  • Clarifies complex decisions

    • Constructing a decision tree diagram may reveal alternative options that managers had not previously considered

  • Forces managers to evaluate risk

    • Managers must assign probabilities to outcomes, encouraging realistic thinking about uncertainty

  • Encourages research-based decision-making

    • Reliable probability estimates require careful market research (e.g., forecasting gold prices or construction demand)

  • Provides clear financial comparison

    • EMV calculations allow ABC to compare diversification into e-waste with improving its core concrete operations

  • Estimates may be inaccurate

    • Probabilities are based on forecasts, which may not fully reflect changes in metal prices, environmental regulations, or global construction demand

  • External factors are difficult to predict

    • Political decisions, environmental laws, or economic recessions may significantly affect outcomes but are hard to quantify

  • Qualitative factors are not included

    • Impacts on employees, company culture, brand reputation, and CSR are not easily measured in financial terms

    • For example, diversification into e-waste may improve reputation, but this is difficult to calculate precisely

  • Time lag reduces reliability

    • By the time ABC implements its decision, market conditions may have changed

    • For example, gold prices may fluctuate between the planning stage and the factory opening

  • Requires expertise and time

    • Constructing an accurate decision tree requires skill and reliable data

    • Bias in probability estimates may lead to incorrect conclusions

Worked Example

Option A: Expand E-waste Processing

  • ABC could build an additional e-waste recycling plant.

    • Initial investment cost: $40 million

  • Market research suggests two possible outcomes:

    • If demand for recycled metals is strong, and gold prices remain high:

      • Probability: 0.6

      • Net return after costs: $90 million

    • If demand is weak and gold prices fall:

      • Probability: 0.4

      • Net return after costs: $20 million

Option B: Improve Concrete Production Efficiency

  • ABC could instead invest in upgrading its existing concrete factories to improve energy efficiency and reduce costs.

    • Initial investment cost: $25 million

  • Market research suggests two possible outcomes:

    • If the construction market remains strong:

      • Probability: 0.7

      • Net return after costs: $60 million

    • If there is a construction slowdown:

      • Probability: 0.3

      • Net return after costs: $35 million

Recommend which option Abraca (ABC) should choose. Justify your answer. [4]

Step 1: Calculate expected monetary value (EMV) of Option A

EMV space equals space left parenthesis 0.6 space cross times space $ 90 straight m right parenthesis space plus space left parenthesis 0.4 space cross times space $ 20 straight m right parenthesis space space equals space $ 54 straight m space plus space $ 8 straight m space equals space $ 62 space million [1]

Step 2: Calculate expected monetary value (EMV) of Option B

EMV space equals space left parenthesis 0.7 space cross times space $ 60 straight m right parenthesis space plus space left parenthesis 0.3 space cross times space $ 35 straight m right parenthesis space space equals space $ 42 straight m space plus space $ 10.5 straight m space equals space $ 52.5 space million [1]

Step 3: Compare expected monetary values

  • E-waste expansion EMV = $62m

  • Concrete efficiency EMV = $52.5m [1]

Step 4: Make your recommendation

  • Based purely on financial expectation, expanding e-waste processing is the better option as it has a higher expected monetary value [1]

Examiner Tips and Tricks

For further information on Decision Trees, check out these detailed revision notes

Force field analysis

Examiner Tips and Tricks

Force field analysis is a tool used to identify and evaluate the driving forces and restraining forces surrounding a strategic decision

  • Driving forces support or justify change

  • Restraining forces prevent or limit change

  • Each force is given a weighting from 1–5, where:

    • 5 = very important

    • 1 = less important

Managers compare total driving and restraining forces to assess whether change is likely to succeed

Application to Abraca (ABC)

Worked Example

Should ABC expand its e-waste processing operations?

Driving forces - these support expansion

Driving force

Description

Weight

Growing global e-waste volumes

  • Rapid increase in discarded electronics creates strong long-term demand

5

Valuable metals recovery

  • Gold and precious metals create new revenue streams

4

Improved CSR and sustainability image

  • Recycling supports circular economy goals

4

Diversification reduces risk

  • Less dependence on cyclical construction industry

3

Restraining forces - these limit expansion

Restraining force

Description

Weight

High investment cost

  • New recycling plant requires $40m investment

4

Limited experience in recycling industry

  • ABC’s core expertise is concrete, not e-waste

3

Volatile metal prices

  • Gold and copper prices fluctuate

3

Regulatory complexity

  • E-waste handling is strictly regulated

2

Step 2: Calculate total restraining forces

equals 4 space plus space 3 space plus space 3 space plus space 2 space equals space 12

Step 3: Compare driving forces and restraining forces

  • Driving forces = 16

  • Restraining forces = 12

  • Since driving forces are stronger, the expansion appears likely to succeed

  • However, managers should try to:

    • Strengthen driving forces (e.g. secure long-term contracts for recycled metals)

    • Reduce restraining forces (e.g. partner with experienced recycling firms)

Examiner Tips and Tricks

For further information on force field analysis, check out these detailed revision notes

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Author
Reviewer
Lisa Eades

Author: Lisa Eades

Expertise: Business Content Creator

Lisa has taught A Level, GCSE, BTEC and IBDP Business for over 20 years and is a senior Examiner for Edexcel. Lisa has been a successful Head of Department in Kent and has offered private Business tuition to students across the UK. Lisa loves to create imaginative and accessible resources which engage learners and build their passion for the subject.

Steve Vorster

Reviewer: Steve Vorster

Expertise: Economics & Business Subject Lead

Steve has taught A Level, GCSE, IGCSE Business and Economics - as well as IBDP Economics and Business Management. He is an IBDP Examiner and IGCSE textbook author. His students regularly achieve 90-100% in their final exams. Steve has been the Assistant Head of Sixth Form for a school in Devon, and Head of Economics at the world's largest International school in Singapore. He loves to create resources which speed up student learning and are easily accessible by all.