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Tech Corner: Precision Tree

Don’t let finance get you down: decision trees really are your friend. But, when you get tired of scribbling on the back of your case, it’s time to check out PrecisionTree by Palisade Software.

One of the best features is that PrecisionTree connects directly with Excel, which means the learning curve is almost non-existent. After spending about twenty minutes going through the tutorial, I was able to construct a fairly detailed decision tree and run some basic analysis. Since there’s no new interface to learn, getting started involves opening an Excel spreadsheet and clicking a single button on a newly-installed toolbar. Then, it’s easy to start creating decision, chance, and end nodes.

Constructing the optimal decision path and performing sensitivity analysis is again a straightforward process. Tackling any decision tree problem becomes a breeze when you use this software. However, one major drawback is that you better know the structure of your tree before you get started. Moving nodes around is a complicated process. The only way I was able to do it was essentially to create the tree from scratch.

Palisade has an entire collection of risk-analysis tools called the DecisionTools Suite. The major components of the Suite are PrecisionTree, @Risk, TopRank, and RISKOptimizer. @Risk adds a quick and easy way to run Monte Carlo simulations on any spreadsheet model. Monte Carlo simulations are used in everything from determining odds of winning with particular poker hands in Texas Hold’em to nuclear physics and creating the atom bomb. It works by running different scenarios over and over to determine all the possible outcomes and the likelihoods of each.

StatTools, sold separately, enhances Excel’s built-in statistical analysis, providing tools for classification analysis, quality control charts-quite useful for TOM-and data management, among others. Again, StatTools plugs right into Excel, removing the burden of learning a new system just to do a few quick calculations on that latest case.

Palisade Corporation was founded in 1984 and specializes in decision analysis tools. Check out www.palisade.com for more information on these products.

October 24, 2005
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