T.6 Decision trees questions for IB Business Management

Lough Derg Dairy Co-operative (LDDC) collects milk from 300 farms in County Tipperary, Ireland. Its board used a decision tree to choose between making mature cheddar for export to the United States and making infant formula powder for Asian markets. The tree showed that infant formula had the higher expected value, and the board approved it at a meeting that lasted 20 minutes. Several farmer-members later complained that they had not been consulted.

Explain two limitations for LDDC of relying on the decision tree to make this decision.

Zhou Precision Components

Zhou Precision Components (ZPC) is a public limited company in Dongguan, China, that makes aluminium housings for laptops and tablets. About 60 % of its output is sold to two electronics brands that assemble products for export to Europe and the United States. ZPC employs 1 400 production workers, 300 of whom are on temporary contracts.

ZPC’s planning director, Zhou Lin, has prepared three scenarios for sales revenue in 2026 (Table 1). The pessimistic scenario assumes that new import tariffs on Chinese electronics are introduced, which would lead ZPC’s two main customers to move some assembly to Vietnam. Zhou Lin has estimated the probability of each scenario from discussions with customers and industry analysts.

The chief executive wants a single sales forecast so that ZPC can set its production plan, decide how many temporary contracts to renew and agree a budget with its bank. Some board members argue that, in such an uncertain trading environment, sales forecasting is “guesswork dressed up as science”.

Table 1: ZPC’s sales revenue scenarios for 2026

In 2025 ZPC’s sales revenue was ¥410m.

Neblina Norte (NN)

Read the resources and answer the questions that follow.

Neblina Norte (NN) is a community-owned social enterprise in a fishing village on the coast of the Atacama Desert, Antofagasta region, Chile. The village has no piped water and almost no rain, and until 2018 its 85 homes depended on expensive water delivered by truck. NN collects water from the thick sea fog (camanchaca) that rolls in from the Pacific: large mesh nets on the hills catch fog droplets, which drip into pipes and tanks and are filtered for drinking. NN sells the water to households at a price that covers its costs. It is run by Carolina Rojas, a local engineer, and owned by the village’s neighbourhood association.

Image: tall rectangles of black mesh net stretched between poles on a bare brown hillside, with a bank of white fog rolling in from the ocean below. A label on a blue water tank reads “Neblina Norte – agua de la niebla”.

Resource 1 – News article from *Diario Costa Norte*

The village that drinks the clouds

Fog-catching has given NN’s village a cheaper, more reliable water supply than trucks. But scientists warn that the amount of fog varies from year to year: during El Niño years, warmer sea water means less fog. “In 2023 our nets collected about 30 % less water than normal,” says Carolina Rojas.

Table 1: Water in the village

CLP = Chilean pesos. USD 1 ≈ CLP 950. 1 m³ = 1 000 litres.

Resource 2 – Social media posts from Don Eliseo, a fisherman in the village

Forty years I paid the water truck – and some weeks it never came. Now my grandchildren drink fog water that costs a quarter of the price. Proud of our village! [1/2]

But I hear NN wants to make BEER with our water? In a dry year will the brewery get water before the families on the hill who still have no connection? Water is for people first. [2/2]

Resource 3 – Internal email from Carolina Rojas to the neighbourhood association’s board

From: Carolina Rojas, Manager

To: Board of the neighbourhood association

Subject: Investment options for 2027

NN makes only a small surplus, and the nets and tanks will need replacing in about five years. We have three proposals:

A. Fog-net expansion (CLP 60 million): 30 new nets, adding about 3 000 litres a day, and pipes to connect the 40 homes on the upper hill that still buy trucked water. They would use about 2 800 litres a day and pay the same price as other homes.

B. Our own brewery (CLP 160 million): a small brewery making “fog beer” for restaurants and tourists in Antofagasta and Santiago. It would use about 2 500 litres of water a day. Profits would fund water projects.

C. Sell surplus water to Cervecería Altiplano, a Santiago craft brewery, under a three-year contract. No investment is needed.

A regional development fund would lend up to CLP 120 million at 6 % a year.

CONFIDENTIAL: this email and any attachments are intended only for the named recipients.

Resource 4 – Financial forecasts prepared by NN’s accountant (CLP million)

Residual values at the end of year 5: fog nets and tanks CLP 20 million; brewery equipment CLP 10 million.

Resource 5 – Survey of village households (78 replies)

Resource 6 – Extract from a university study of fog-catching in northern Chile

“Fog water yields in the region varied between 70 % and 115 % of the long-term average over the past decade, with the lowest yields in El Niño years. Communities that commit fog water to commercial users should agree in advance who has priority in dry years. Well-maintained nets last 8–10 years.”

Bremer Creek Vineyard

[1] Bremer Creek Vineyard (BCV) is a family-owned vineyard in the Barossa Valley, South Australia. It grows shiraz grapes and sells them to two large wineries under contracts that pay according to the sugar content and quality of the grapes. Owner Callum Fraser has managed the vineyard since his father retired, and employs eight permanent staff and about 30 seasonal pickers.

[2] It is late March, and the grapes are ripe enough to pick. If BCV harvests now, the wineries will pay a certain AUD 420 000 for the crop. Callum’s viticulturist, Jasmine Chua, believes that two more weeks on the vines would raise the sugar content and the price. The weather forecast suggests a 0.6 probability of dry weather over the next two weeks, in which case the crop would be worth AUD 600 000. However, there is a 0.4 probability of heavy rain, which would cause rot and reduce the crop’s value to AUD 250 000.

[3] Callum is uneasy. Last year’s crop was damaged by rain and BCV had to increase its bank overdraft. The seasonal pickers are available now but may have moved on to other farms in two weeks’ time. One of the wineries has also said that it would prefer early delivery this year.

Ankobra Cocoa Processors

Ankobra Cocoa Processors Ltd (ACP) grinds cocoa beans into cocoa butter and cocoa powder at a factory in Takoradi, Ghana, and sells them to chocolate manufacturers in Europe. Its factory is running at full capacity, and its managing director, Kwame Ofori, wants to double output to take advantage of growing demand and the Ghanaian government’s policy of processing more cocoa in the country instead of exporting raw beans.

Kwame is considering two options. Option A is to build a second grinding factory next to the existing one. Option B is to acquire Volta Grinders, a rival processor near Tema that has modern machinery but has lost money for two years because of poor management. ACP’s finance team has estimated the costs and the possible financial outcomes over the next eight years (Table 1).

Kwame knows that ACP’s managers have never run a second site, and that Volta Grinders’ 220 workers are unionised and worried about job losses.

Table 1: Estimated costs and outcomes of ACP’s growth options (GHS million)

Tsiky Vanilla Co-operative (TVC)

Read the resources and answer the questions that follow.

Tsiky Vanilla Co-operative (TVC) is a co-operative of 380 smallholder vanilla farmers near Sambava, in the SAVA region of north-east Madagascar, which grows most of the world’s vanilla. It was set up in 2012 with the help of a development NGO. TVC buys green vanilla pods from its members at a guaranteed minimum price, cures them for several months in its own sheds until they turn dark and fragrant, and sells the cured vanilla to exporters. Its surplus pays for a health clinic and school bursaries. Tsiky means “smile” in Malagasy.

Image: bundles of glossy dark-brown vanilla pods tied with raffia, laid on a woven mat in the sun; a woman sorts them by length. A stamp on a wooden crate reads “Tsiky Vanilla – SAVA, Madagascar. Cured by the hands that grow it”.

Resource 1 – News article from *Indian Ocean Commodities Weekly*

Vanilla prices: from boom to bust – again

Vanilla prices are among the most volatile of any crop. After a cyclone destroyed many plantations in 2017, prices rose to record levels, attracting new growers worldwide; prices then collapsed. High prices also bring theft: some farmers pick their vanilla too early to stop it being stolen, which lowers its quality and price. Large flavour companies now prefer long-term contracts with suppliers who can prove quality and trace every pod to a farm.

Table 1: Approximate average export price of cured Madagascar vanilla (USD per kg)

Resource 2 – Social media posts from Jean-Claude, a TVC member

Three nights a week I sleep in my vanilla field with a machete so that thieves don’t take the pods. When prices were high, my neighbour lost his whole crop in one night. When prices are low, nobody steals – but we can hardly feed our children. [1/2]

TVC’s minimum price saved us last year. But the co-op only has a little money left. If prices stay low, will it still be able to pay us? [2/2]

Resource 3 – Internal email from Hanitra Rakoto, TVC president, to the members’ committee

From: Hanitra Rakoto, President

To: Members’ committee

Subject: Fixed-price contract or spot market?

Maison Arômes, a French flavour company, has offered a five-year contract for 20 tonnes of cured vanilla a year at a fixed price of USD 75 per kg, if we meet its quality grade and its traceability rules. These would cost us about USD 60 000 a year (inspections, record-keeping, staff). If a year’s vanilla fails the quality grade, the price that year falls to USD 60 per kg. It would also accept a smaller contract of 10 tonnes on the same terms.

Our other choice is to keep selling our 20 tonnes each year on the spot market to whichever exporter pays most. An NGO analyst estimates the chances for the next few years (attached).

TVC’s costs – minimum payments to members, curing, staff, the clinic and bursaries – are about USD 1.0 million a year. Our cash reserve is only USD 250 000.

CONFIDENTIAL: this email and any attachments are intended only for the named recipients.

Resource 4 – NGO analyst’s estimates

Probability that TVC meets Maison Arômes’s quality grade in any year: 0.8.

Resource 5 – Survey of TVC members (290 replies)

Resource 6 – Letter from Maison Arômes’s sustainability director

“Our customers – ice-cream and chocolate makers in Europe – want vanilla that is high in quality, fully traceable and produced without child labour. We will pay a stable price for reliable partners, and we will contribute USD 10 000 a year to a community project chosen by the co-operative. We will audit TVC once a year.”