Decision Tree Financial Management Essay

1589 words - 6 pages

Decision tree analysisDecision tree analysis known as an analytical tool applied to decision-making under condition of uncertainty, also clarifying where there are many possible outcomes for various alternatives and some outcomes are dependent on previous outcomes. However, decision tree will present as a diagram by showing the relationship among possible courses of action, possible events and the potential outcomes for each course of action in the decision (Drury, 2012). So decision tree analysis is useful for merchant navy company to understand in what direction their chance events are and what their values in terms of profits and losses are for each of the two tooling alternatives, also visualize the outcomes of different prospects in order make better decision under uncertaintyStrengths of decision tree analysisDecision tree analysis will show all the alternatives, probabilities, costs and the possible outcomes that are not even consider by the company. The company can add the possible scenario into decision tree diagram, through the diagram can calculate the expected values and a probability distribution in more complex situations and the attributes can be chosen in any desired order (Kirkwood, 2002).Weaknesses of decision tree analysisHowever decision tree analysis brings sequential decisions and class-overlap problem that including categorical variable with different number of levels, and the information gain in decision tree analysis are biased in favour of those attribute with more levels. Also correlated data and complex production rules will occur in decision tree analysis, it can get very complex particularly if many values are uncertain and/or if many outcomes are linked (Kirkwood, 2002).Merchant navy industry backgroundMerchant navy industry plays an important role in both domestic trade and international trade by transporting goods or passengers via sea to all around the world. There are different types of shipping service and kinds of cargo in order to serve different needs including feeder vessel, tankers, container ships, bulk carries and specialist ships (World Shipping Council, 2014). According to China Daily Information Co. (2012), there is high demand in merchant navy industry due to freight transport capacity and loading volumes steadily rising in the moment. Therefore, it is important for merchant navy company to invest in new shipping service to cope with the demand.Company Background - China Shipping (Group) CompanyChina Shipping (Group) Company is one of the largest shipping companies in China with approximately 47,000 employees worldwide. It was incorporated as international shipping line since 1997 and operates under the direct administration of Council of the People's Republic of China. Mr. Li Shaode is the chairman of the company and it has over 100 branches across different regions and countries, also is headquartered in Shanghai, China. The another five holding companies owned by China Shipping (Group) Company are...

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