Recorded on: May 23, 2014

CA IPCC Course
Paper 7A: Information Technology

Chapter 1 : Business Process Management and IT –

Part 5

CA. Veena Hingarh

© The Institute of Chartered Accountants of India

Disclaimer Statement

• This lecture has been delivered by faculty members to supplement

the Study Material, Practice Manual and other content
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• The views expressed in this lecture are of the Faculty Member.

2
• The content of this video lecture has not been specifically
discussed by the Council of the Institute or any of its Committees
and the views expressed herein may not be taken to necessarily
3 represent the views of the Council or any of its committees

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 Recorded on: May 23, 2014
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Content

Approaches to Mapping System

Decision Decision
Trees Tables

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The Decision Environment

An objective that the decision maker is trying to reach

Several courses of action (Acts)

Measurable benefit (Payoff)

Events beyond the control of the decision maker

Uncertainty

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Decision Tree
Choose between alternatives

Applies logic to decision making

Identifies likely outcome

Quantitative approach

Useful when the Places a numerical

outcomes are value on likely or
uncertain potential outcomes

Allows comparison
of different
possible decisions
to be made

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Decision Tree Conceptual View

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Decision Tree Conceptual View

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Conventions

A decision made is A state of nature is

The tree is drawn left indicated by a indicated by a hollow
to right
square box:  circle : 0

Calculations are
At the end of each
made right to left,
branch we indicate
summing
the net payoff of that
expectations at each
branch.
state.

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Decision Process

Identify alternatives

Identify Financial costs and Benefits

Identify Probability of Outcome

Square- where decisions have to be

made

Circle-Where there are possible

outcomes

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 The Process
Economic growth rises Expected outcome
0.7 MU300,000

Expand by opening new outlet

Economic growth declines Expected outcome
-MU500,000
0.3

Maintain current status

MU0

Expected Outflow:
• Growth rises: 0.7 x MU300,000 = MU210,000
• Growth declines: 0.3 x MU500,000 =-MU150,000
• The calculation suggests it is wise to go ahead with the
decision ( a net ‘benefit’ figure of +MU60,000)

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 The Process
Economic growth rises Expected outcome
0.5 MU300,000

Expand by opening new outlet

Economic growth declines Expected outcome
-MU500,000
0.5

Maintain current status

MU0

If the firm is unsure of the potential for growth, it might estimate it at 50:50.
Look what happens:

Economic growth rises: 0.5 x MU300,000 = MU150,000

Economic growth declines: 0.5 x -MU500,000 = -MU250,000

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Expected Monetary Value

A businessman has two He lacks the Capital to

independent investments undertake both of them
A and B available to him, simultaneously.

He can choose any one of

his investments first and
then if it succeeds he can
either invest in the other
alternative or choose not
to invest anymore.

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Expected Monetary Value

Both investments require

The probability of A
an investment of Rs
succeeding is 0.7 and B
2000 and will fetch him
it is 0.4.
no profit if it fails.

On the contrary if A
succeeds he can make a
profit of Rs 3000 and if B
succeeds he can make a
profit of Rs 5000.

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Decision Tree

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Advantages

Enables Use of
effective use of probability
past data allows flexibility

Objective Clear thinking

analysis and planning

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Disadvantages

Requires
quantitative Probabilities are
inputs to give a only estimates
complete picture

Reliant on
Real time data
accuracy of data
is difficult
used

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Decision Tables

A matrix Specifies the

Best used for
representation of possible
complicated
the logic of a conditions and the
decision logic
decision resulting actions

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Parts of a decision table

Condition Action Condition Action

Stub Stub entries entries

Grant Credit Facility R1 R2 R3

C1 Credit Limit Okay Y N N

C2 Pay Experience Favourable - Y N

A1 Allow Credit Facility X X

A2 Reject Order X

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Components

Action Statements -
Condition Statement
Actions that result
-Lists condition Condition Entries
for a given set of
relevant to decision
conditions

Rules -Specify
which actions are to
Action Entries be followed for a Header
given set of
conditions

Rule Identifiers
Condition Identifiers Action Identifiers
(R1,R2)

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Steps to making a Decision Table

PART 1. Identify the conditions E.g., We want to know

FRAME (decision criteria). These the total cost of a
THE are the factors that will student’s tuition. What
PROBLEM. influence the decision. factors are important?
Identify the range of E.g. What are they for
values for each condition each factor identified
or criteria. above?

Identify all possible E.g. What types of

actions that can occur. calculations would be
necessary?

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Steps to making a Decision Table

PART 2. Put the conditions in the upper left

CREATE Create a table quadrant. One row per condition.

THE with 4 quadrants. Put the actions in the lower left

quadrant. One row per action.
TABLE.
List all possible Alternate values for first condition.
Repeat for all values of second
rules. condition. Keep repeating this process
for all conditions.

Enter actions for

each rule Put the rules in upper right quadrant.

Reduce table as In the lower right quadrant, determine

necessary. what, if any, appropriate actions should
be taken for each rule.
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Example

A shopkeeper allows credit to customers if they

satisfy any one of the conditions
• Holding the present job for more than 3 years and residing in
the same place for 5 years
• Monthly salary exceeds Rs. 1500 and holding present job for
more than 3 years
• Residing in the same place for 5 years and Monthly salary
exceeds Rs. 1500.
• The facility is rejected to all other customers.

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Example

Identify the conditions

Identify the actions

Calculate the maximum number of columns in the decision

table –
• No. of Rules = 2no. of conditions

Fill in the condition alternatives

• Insert Y and N to give all possible combinations.

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 Example
Y Y Y Y Y Y Y Y N N N N N N N N
Y Y Y Y N N N N
Y Y N N
Y N

Complete the table by inserting an X where rules

suggest certain actions.

Combine rules where it is apparent that an alternative

does not make a difference in the outcome;

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Example

Three Conditions
• Holding the present job for more than 3 years
• Monthly salary exceeds Rs. 1500
• Residing in the same place for more than 5 years
Actions involved
• Allow Credit Facility
• Reject Credit Facility
Prepare the Y and N responses

No. of Rules = 23

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 Example
Allow Credit Facility R R R R R R R R
1 2 3 4 5 6 7 8
C Holding the present job for more
Y Y Y Y N N N N
1 than 3 years
C Monthly salary exceeds Rs.
Y Y N N Y Y N N
2 1500
C Residing in the same place for
Y N Y N Y N Y N
3 more than 5 years
A
Allow Credit Facility X X X X
1
A
Reject Credit Facility X X X X
2

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Example

Combine rules where there are redundancies

• All of the conditions except one have the same Y or n
• The actions for both are the same

Combine the rules into one and replace the Y or N with a -

. It means than entry has no effect on the decision.

In this case R1 and R2 or R7/R4 & R8

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 Example
Allow Credit Facility R1 R2 R3 R4 R5 R6
C Holding the present job for more than Y Y Y N N N
1 3 years
C Monthly salary exceeds Rs. 1500 Y N N Y Y N
2
C Residing in the same place for more - Y N Y N -
3 than 5 years
A Allow Credit Facility X X X
1
A Reject Credit Facility X X X
2

Check for completeness of rules

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 Indifferent Condition
In a decision table, a condition whose value does not affect
which actions are taken for two or more rules.

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Indifferent Condition

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Practice: Identify Indifferent Conditions

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Practice: Identify Indifferent Conditions

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Look Out!

Four main problems that can occur in

developing decision tables:

Impossible
Incompleteness.
situations.

Contradictions. Redundancy.

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 Question Time – Part 5
Business Process Management and IT

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Q 1: A decision table is divided into four parts. It
does not include

A) Condition Stub

B) Rules Stub

C) Action Stub

D) Action Entries

Answer: B

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Q 2: Rule identifiers

A) provide the
B) identify each C) identify each
unique
rule within a condition and
combination of
table action
rules

D) completes the
action Answer: B
statements

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Q 3: Which of the following are not true for
Decision tables?

A) It is a matrix representation of the logic of a

decision

B) It considers the probability of happening of various

alternatives

C) It specifies the possible conditions and the

resulting actions

D) It is best used for complicated decision logic

Answer: B

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Q 4: Elements of uncertainty are considered while
making a -

A) Decision Table

B) Decision Tree

C) Logic Flowchart

D) Entity Relationship diagram

Answer: B

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Q 5: Maximum number of columns in a decision
table are equal to-

A) The number B) The number C) The number

of rules of conditions of actions

D) The number
of given Answer: A
constraints

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Q 6: Main problems that may occur while
developing decision tables does not include

A) Incompleteness.

B) Impossible situations.

C) Availability

D) Redundancy

Answer: C

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Q 7: A decision environment while preparing a
decision tree is not characterized by

A) Course of action (Acts)

B) Measureable benefits (Payoffs)

C) Uncertainty

D) Legal issues

Answer: D

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Q 8: The analysis of complex decisions with significant uncertainty can
be confusing. Which of the following is not a factor contributing to the
uncertainty:

A) Consequences of actions cannot be predicted with certainty

B) Senior management may not be of the same personal opinion as the

reflected in the decision tree

C) Decision maker’s attitude towards risk can impact the desirability of

alternatives

D) Large number of factors need to be taken into account when making

decisions

Answer: B

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Thank you

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