IB Business Management HLTopic 8 — The Pre-Released StatementPaper 1 — HL onlyToolkit~14 min read
Decision Trees and Force Field Analysis
These are the two toolkit tools that produce a number. That makes them popular with examiners, because the marks are easy to award and easy to lose. Get the arithmetic right, then spend your remaining marks explaining why the number should not be trusted on its own.
📚 What you need to know
A decision tree maps options, the chances of each outcome, and what each outcome is worth.
Expected monetary value (EMV) = each payoff multiplied by its probability, then added together.
Net gain = EMV minus the cost of the decision. Compare net gains, not raw EMVs.
Probabilities on a single branch point must add up to 1.
Force field analysis weighs the forces pushing for a change against the forces pushing back, usually scored 1 to 5.
Neither tool captures reputation, staff morale or safety — and that is always your evaluation.
Decision trees: the shape
A tree reads left to right. A square is a decision you control. A circle is a chance node — something the world decides for you. The numbers on the far right are the payoffs.
These figures are made up for practice. On exam day the real ones will be in the case study — the method is what you are learning here.
The two formulas you must know
EMV = (probability × payoff) + (probability × payoff)
Net gain = EMV − cost of the decision
🤔 The mistake that costs the most marks
Comparing EMVs and stopping there. In the tree above, Option A has by far the higher EMV ($88m against $66.5m) — but it also costs $20m more to set up. Once you subtract the cost, the two options are almost level: $38m against $36.5m. A gap of $1.5m on a $50m investment is well inside the margin of error on any forecast, which means the numbers do not decide this. The qualitative factors do. That single observation is worth more than the whole calculation.
Where ABC could actually use a decision tree
Expanding e-waste processing — high potential profit from gold against the risk of low supply or falling metal prices.
Upgrading concrete factories — a known upfront cost against uncertain long-term energy savings.
Entering a neighbouring country — the profit from a new market against political and demand risk.
Why decision trees help ABC
Why the answer should not be trusted alone
They force managers to put a number on risk instead of arguing about it.
The probabilities are estimates. Nobody knows the chance of a gold price fall.
Drawing the tree often reveals an option nobody had considered.
Reputation, worker safety and CSR simply do not appear in the arithmetic.
EMV lets ABC compare concrete investment against e-waste investment on one scale.
Prices and demand can move between building the tree and opening the plant.
Force field analysis
Force field analysis is the qualitative twin. Instead of money, you list the forces pushing a change forward and the forces holding it back, score each from 1 (weak) to 5 (very important), and compare the totals.
The useful output is not the total. It is the list: which restraining force could ABC reduce, and which driving force could it strengthen?
Do something with the forces. ABC could cut the biggest restrainers directly: lease equipment instead of buying it to reduce the upfront cost, and hire experienced recycling managers to close the experience gap. It could strengthen the drivers by signing long-term collection contracts with local councils. Saying that is far better than “16 beats 14, so go ahead”.
Worked examples
WORKED EXAMPLE
Using the tree above, calculate the expected monetary value of Option A and recommend which option ABC should choose. [4]
Step 1: EMV of Option AEMV = (0.6 × $120m) + (0.4 × $40m)= $72m + $16m = $88m[1]Step 2: EMV of Option BEMV = (0.7 × $80m) + (0.3 × $35m)= $56m + $10.5m = $66.5m[1]Step 3: take off the costA: $88m − $50m = $38m. B: $66.5m − $30m = $36.5m.[1]Step 4: recommend
On net gain, Option A is better by only $1.5m — too close to call on the numbers alone, so ABC should decide on the qualitative factors such as supply security and reputation. [1]Answer: Option A, by a very narrow marginShow every line of working. Marks are given for the method even if the final figure slips.
WORKED EXAMPLE
Analyse the usefulness of decision trees to ABC’s senior managers. [6]
Use 1 — comparing unlike things
ABC has to choose between investing in concrete efficiency and expanding e-waste. These are completely different businesses, and EMV puts both on a single money scale so the board can compare them directly.
Use 2 — it forces honesty about risk
Assigning probabilities makes managers state how likely strong demand really is, rather than assuming the best case.
Limitation — the numbers are softGold prices move on world markets and cannot be forecast reliably, so the probabilities are educated guesses. A small change in them can flip the recommendation, especially when net gains are only $1.5m apart.
Limitation — what is left out
Reputation, worker safety around toxic metals, and the strain of running two industries at once are all real costs that never enter the calculation.
Two uses, two limitations, applied throughoutNotice how often “toxic metals” and “gold prices” appear. Case detail is what makes an answer specific to ABC.
💡 Exam tip
Always subtract the cost. The most common lost mark in the whole topic.
Check probabilities sum to 1 at every chance node before you calculate.
Keep the units. Write “$88m”, not “88”. Examiners want the money label.
Show working line by line. Method marks survive an arithmetic slip.
Round sensibly and say so — two decimal places is plenty.
Finish with a qualitative point. “But this ignores safety and reputation” earns the evaluation mark on almost every quantitative question.
⚠ Common mix-up
EMV is not profit. It is a weighted average of possible outcomes, before costs.
Squares and circles are not interchangeable. Square is your choice; circle is chance.
A higher EMV does not always win. Check the net gain after the investment cost.
Force field scores are not facts. Somebody chose them, so somebody could choose differently.
A bigger driving total is not a decision. A narrow gap means the plan needs work, not approval.
Do not add force field scores to money. They are separate tools answering separate questions.
Up next: Bringing Circular Business Models Into Your Answers — the idea that ties both halves of ABC together.
Want this explained one-to-one?
Book a free session with an experienced IB Business Management tutor and get your trickiest topics made simple.
