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Risk and Uncertainty - Decision Trees Part 2 - ACCA Performance Management (PM)

VIVA Subject Guide
YouTube video

32 Comments

  1. Pompaciadem
    Hi, first of all thank you for the great lectures. I would like to ask a question about the market research outcomes. Since it says in the question "If the research indicates a poor result, then they will only be prepared to consider the cheaper refurbishment" I believe Shut down option should have been ignored. Could you please explain why did we include it as well?
  2. John MoffatTutor
    The question says that they will consider the cheaper refurbishment (so not the more expensive one), but they will only consider it. So if it would be better to shut down then they would do so.
  3. Michael
    Dear Prof,

    Thank you for the insightful lecture. While reviewing the ACCA Study Hub materials, I noticed that the treatment of the calculations after drawing the decision tree appears different from what you covered in the recorded video.

    In the Study Hub example, after calculating the probabilities for each outcome (success/failure, good/bad as applicable), the values were subtracted from each other, rather than added together. This seems to differ from the usual expected value approach where we sum the weighted outcomes.

    Could you kindly look into this and provide further clarification on why this method was applied?

    Thank you, sir.
  4. Michael
    This could be found in activity 4, chapter 8 of the ACCA study hub.
  5. Michael
    My apologies, it is understood now. so sorry for the misinformation.
  6. Ridev
    Greeting my friend,I also encountered this issue. I believe that as per opentuition question was that cheap ref would bring around 4.5m if i remember well i.e. it would be a gain,thus a positive value and as per studyhub question,it mentions that a loss will occur,so at point G it will be 0.8*10 minus 4.5*0.2. You should take into consideration whether the question assumes there will a gain in the net outcome or a loss.
  7. Ridev
    The exposure to different kinds of questions like this,will surely increase our knowledge for section C.Hope we pass the exam.
    Cheers to John for being an amazing teacher!
  8. Laszlo
    Hi John,
    thank you so much for your incredibly helpful lectures!
    Can I just ask why we ignore in the calculations that market research has a 68 % probability?
    Thank you!
  9. Laszlo
    Please ignore my comment. I might have left my brain in my pocket for the last minutes of the video.
    Wishing you a wonderful New Year!
  10. John MoffatTutor
    No problem, and a Happy New Year to you also :-)
  11. Natasha
    thank you very much.
    With your explanations, the task was so simple
  12. khushboo
    Hello Sir,

    Hope all is well.
    Sir in 6th part you've taken the value 5 instead of 4.59.
    please explain sir.

    Thank You!
  13. John MoffatTutor
    Because it is our choice whether to shut or to continue with cheap refurbishment. Shutting gives us a bigger return,
  14. Varsha
    Well explained but as for remote exams with no rough sheet allowed, will it be possible to solve such questions?
  15. John MoffatTutor
    You cannot be asked to draw a tree, but you are expected to understand it and be able to do relevant calculations on it.

    (Although there is no rough paper, there is a scratch pad on the computer)
  16. Zahrien
    Thank you Mr. Moffat, your lecture is quite helpful as you explained a complex concept with simplicity yet informative
  17. John MoffatTutor
    Thank you for your comment :-)
  18. Mr. Aboukar
    Hello john

    i have struggled to find the value of perfect information in example two in the case of the decision three; could you help please.

    i would like thank u in advance.
    your are the best accounting lecturer i have ever saw.
  19. John MoffatTutor
    But example 2 does not ask for the value of perfect information :-)
  20. Mr. Aboukar
    I know, but i wonder if we could find out the value of perfect information in the case of the decision three.

    Thanks john.
  21. alhassankamara
    This is the best lecture I have ever got on decision tree. Thanks for the clear and concise explanation.

    Respectfully!!!
  22. John MoffatTutor
    Thank you for your comment :-)
  23. naholom1990
    Thank you very much for this presentation. It has indeed cleared alot of my confusion regarding the decision tree theory.
  24. John MoffatTutor
    Thank you for your comment :-)
  25. Pepita
    Really good lecture John, thank you for explaining so clearly.

    I believe we may have missed a step at point B, we should have deducted 2m from 4.59 = 2.59. So the decision would have been 5m & 2.59 m return. It doesn't impact the final decision in this example as 5m is still a better option.
  26. SOLANKAR
    Fantastic lecture.
  27. John MoffatTutor
    Thank you for your comment :-)
  28. yaya700
    What happens to the 200K for market research?
  29. yaya700
    Please ignore, sorry
  30. John MoffatTutor
    No problem :-)
  31. John MoffatTutor
    But most decisions in practice have uncertain outcomes and expected values is one approach to dealing with the uncertainty that might be worth considering.
    (The tree itself is not a requirement, but does help sort out the problem when there are several decisions to be made depending on the outcomes. The problem is not the tree but whether or not expected values are a sensible way of dealing with the uncertainty.)

    Thanks for the final comment :-)
  32. alie2018
    Excellent presentation. Thanks

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