Why Decision tree analysis is important in decision-making? Construct the Decision Tree and Calculate the Expected Value (EV) for Each Decision To analyze

Make a Report answering:

Q1: Why Decision tree analysis is important in decision-making? Construct the Decision Tree and Calculate the Expected Value (EV) for Each Decision

To analyze Google’s decision to acquire YouTube, a decision tree can be constructed to visualize the key decision paths, risks, costs, and expected outcomes. This approach helps in structuring Google’s options and evaluating potential payoffs for each scenario. Below, I’ll outline the structure of a decision tree, showing possible alternatives, outcomes, and associated probabilities.

Decision Options: 

o  Acquire YouTube: Buy YouTube for $1.65 billion. 

o  Continue Developing Google Video: Invest more in Google Video to compete directly with YouTube.

o  Do Nothing: Maintain the status quo, i.e., make no major investment and observe the market.

Potential Outcomes and Probabilities: For each decision, there are different potential outcomes, along with associated probabilities (these are illustrative values and should be validated with actual data for precise analysis):

1.  Acquire YouTube

• Outcome 1: High market dominance, rapid user growth, and strong advertising revenue.
  • Probability: 70%
  • Payoff: High positive return due to dominant market position and revenue growth.
• Outcome 2: Legal issues lead to high costs, causing reputational and financial damage.
  • Probability: 30%
  • Payoff: High legal costs and delays in achieving expected revenue.

2.  Develop Google Video

• Outcome 1: Google Video gains market share, gradually competing with YouTube.
  • Probability: 40%
  • Payoff: Medium positive return due to high investment and slower growth.
• Outcome 2: Google Video struggles to compete with YouTube, resulting in a loss.
  • Probability: 60%
  • Payoff: High costs with low user growth, resulting in financial losses.

3.  Do Nothing

• Outcome 1: Market shifts toward video-sharing platforms, leading to a loss of market opportunity.
  • Probability: 80%
  • Payoff: Loss of market share in the video segment, no new revenue streams.
• Outcome 2: Other competitors emerge and challenge YouTube, creating a window of opportunity for Google to re-enter later.
  • Probability: 20%
  • Payoff: Minimal impact, but Google remains less competitive in the short term.

Financial Payoffs for Each Outcome

These are hypothetical values, meant to reflect potential financial outcomes and strategic value:

1.  Acquire YouTube

• High Market Dominance: $50 billion in long-term revenue and strategic advantage.
• Legal and Financial Challenges: -$2 billion in legal costs and delayed market entry.

2.  Develop Google Video

• Successful Competition: $10 billion in revenue over a long period, due to slower growth.
• Failed Competition: -$1 billion in sunk costs and low market share.

3.  Do Nothing

• Lost Market Opportunity: -$5 billion due to missed opportunities in video ad revenue.
• Opportunity to Re-Enter Later: $2 billion in potential revenue if new competitor falter

Q2: What were the key factors Google considered in evaluating the acquisition of YouTube, and how did the legal risks weigh against the potential market dominance YouTube could provide?

Q3: How did the strategic synergy between YouTube’s user base and Google’s advertising platform influence the decision to acquire YouTube?

Q4: Major Conclusion

·  Expected table of contents: 

o  Introduction on the tree analysis. 

o  Literature review on the chosen decision model.

o  Solve Q1 making calculations and tree picture

o  Critical discussion about Q2; Q3

o  Conclusion, 

o  References

o  Appendix: 

§  1-Final decision Google decision tree and why, 

§  2-Brief table key factors Google considered youtube adquisition & legal risk (bullet points), 

§  3- Brief table including pros and cons synergies between Google and Youtube (bullet points), 

§  4-Mayor conclusion Table (Bullet points)

Formalities:

·  Wordcount: 2.000 words

·  Cover, Table of Contents, References and Appendix are excluded of the total wordcount.

·  Font: Arial 12,5 pts. 

·  Text alignment: Justified. 

·  The in-text References and the Bibliography have to be in Harvard’s citation style.

It assesses the following learning outcomes:

• Outcome 1: To have an in-depth understanding of effective decision-making processes within a business context marked by uncertainty, risk, danger, opportunity and growth.
• Outcome 2: To identify and apply interpretive and analytical methods and tools for effective analysis and decision-making.
• Outcome 3: To apply the framework of effective decision-making within the business context of Risk Management.
• Outcome 4: To critically appreciate the framework of problem analysis with the context of decision-making.