I’ve mentioned the use of Decision Trees by mediators previously on this blog. Here and here and here and here. So why do I keep banging on about them? Well, first, because I believe they are such an indispensable tool in the commercial mediator’s toolkit.

Stated simply, a decision tree is a tool used to value the financial outcomes possible in any litigation. It does not measure the value of intangibles such as stress, anxiety, and uncertainty.

A decision tree analysis involves four basic steps:

1. Listing the various possible events which might occur in the course of litigation (or beyond);
2. Considering the costs or gains associated with each possibility;
3. Discounting each possibility by its probability-estimated likelihood that it will occur; and
4. Evaluating the overall picture by multiplying each possibility by its probability. 

There will be a different decision tree analysis for each party to a lawsuit. For the purpose of my analysis in this very simple case, I boiled the possible litigated outcomes down to two: a reasonable best case and a reasonable worst case. 

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