Settlement Perspectives

Thoughts on how to resolve disputes and get your deal done.


5 PerspectivesNovember 9, 2011

The Decision Tree, Step by Step: How Much Is Your Million Dollar Case Worth?

Resolution Tree Logo

What’s your dispute worth – to you and to the other side? It’s hard to imagine settling without knowing the answer, and a decision tree can be a critical tool to help you get there. As I have said before, there are plenty of reasons why we should use decision trees, but – until now – there hasn’t been a step by step guide detailing how to use them. It’s time to change that.

Smith v. BiggCo, Inc. – Case Background

To demonstrate how to create a decision tree I have used a few screenshots from Resolution Tree, a decision tree product from my friends at Unit Interactive and me.  In this decision tree, you represent Smith, who plans to sue BiggCo, Inc. for wrongful termination. You know that BiggCo will fight the case hard, but you’re well into your Early Case Assessment and know that – if you can make it to trial – you have a real shot at $1,000,000.

You anticipate BiggCo. will file a Motion to Dismiss and a Motion for Summary Judgment, and you’ll need to determine your costs to overcome each, as well as the chances you won’t. If you make it to trial, you’ll more than likely win, and you have determined (through your Early Case Assessment) that your damages will be clustered at low, medium and high ranges of $25,000, $150,000, and $1,000,000.

Your First Event — Settle or Litigate?

The first real step in any decision tree is to articulate the decision. This initial choice can be anything over which you have control – “File suit in California or Ohio?” or “Arbitrate or Litigate?” or “Settle or Litigate?”. For disputes, I often insert “Settle or Litigate?” as shown below:

The Decision Tree:  The First Decision

Note that you’ll be asked to insert a “Cost” and a “Payoff/Payout.” In this case I have assumed it’ll cost $1,500 at my hourly rate to negotiate a settlement agreement. The “Payoff/Payout” amount is what you’ll expect to receive or to pay if this event occurs; I have inserted $27,500, which is BiggCo’s settlement offer in my case.  If you don’t have a settlement offer, you can insert the offer you anticipate will come, or you can leave it at $0 for now.

Your Second Event – The Motion to Dismiss

For your second event, you need to use your experience and what you know about the case to answer a few questions:

  • What are the possible outcomes?
  • What is the probability – the chance or the likelihood – that each outcome will occur?
  • What will it cost to respond to the Motion to Dismiss – no matter what the outcome is?
  • What is the Payoff/Payout to or by your side, if any?  What payments will you make or receive? (Note that, if you are the plaintiff, you will enter a positive number, since you will be receiving a payment; if you are a defendant, you will enter a negative number, since you will be making the payment.)

As you can see below, on behalf of Smith you have decided it will cost $10,000 to respond to the motion, and you only have a 20% chance of losing it. There is no payout to you whether you win or lose, since a loss on the motion is a loss of the case and the reward to a plaintiff for winning a motion to dismiss is simply the next stage in the lawsuit.

The Decision Tree:  The Motion to Dismiss

Naturally, you want the motion to be denied so you can take the next step toward trial. That next step in this case is the Motion for Summary Judgment, which is represented as an “event” that follows the denial of the Motion to Dismiss.

Your Third Event – The Motion for Summary Judgment

You know the Motion for Summary Judgment in your case will be tough. As shown below, you have determined:

  • it will cost $25,000 to prepare a response;
  • you have only a 33% likelihood of prevailing;
  • the next step is trial – if the motion is denied; and
  • there is no “Payoff/Payout” at this stage:

The Decision Tree:  The Motion for Summary Judgment

Your Final Event – Trial

At trial you could win or lose, but if you win you have clustered your likely damages into “low,” “medium” and “high” damages of $25,000, $150,000 and $1,000,000. You list these outcomes on the tree as follows:

Image 4

The Tree

At the end of the day your decision tree will look something like this:

The Full Decision Tree

Just as you suspected, there are lots of potential outcomes, including your million-dollar verdict. But what’s your case actually worth before it starts?

The Report

The Summary Report on Smith’s case is telling.  The following graphic shows that:

  1. The plaintiff in this case has an 80% chance of losing her case before it even begins;
  2. If costs are reflected in the equation, the plaintiff ends up owing money in 86% of the outcomes in this case; and
  3. Even with a 30% chance of a $1,000,000 verdict at trial, the costs to get there – and the chances she won’t – render the Expected Value of the tree a mere $48,870.

The Decision Tree:  The Report

Indecision over what to add into your decision tree is often the most difficult part of any tree, and there are no perfect answers, particularly at the outset of the case. So keep your tree simple as your case begins, and revisit and revise the tree as your case progresses. Smith v. BiggCo, Inc. is a perfect tree for an Early Case Assessment, but after winning a Motion to Dismiss, I would likely revise the tree to incorporate more details and issues in the case.

Try a decision tree in your next case.  You’ll be glad you did.

For more on Decision Tree Analysis, read the Settlement Perspectives series on decision trees, which includes:

1. Decision Tree Analysis in Litigation: The Basics;

2. Why Should You Try a Decision Tree in Your Next Dispute?;

3. Advanced Decision Tree Analysis in Litigation: An Interview with Marc Victor, Part I;

4. Advanced Decision Tree Analysis in Litigation: An Interview With Marc Victor, Part II;

5. Decision Trees in Mediation: A Few Examples;

6. Avoiding the Limitations of Decision Trees: A Few Tips from Mediators Who Use Them; and

7. The Decision Tree – Step by Step (this post).

Categories: Communication,Decision Trees,Negotiation,Resolution Tree,Selected Posts

5 Perspectives:

Settlement Perspectives: The Decision Tree, Step By Step: How Much Is Your Million Dollar Case Worth? - ADR ToolboxThursday, November 10, 2011 11:32 am

[...] Perspectives: The Decision Tree, Step By Step: How Much Is Your Million Dollar Case Worth?            American Journal of Mediation: The [...]

Decision Trees |Thursday, January 26, 2012 5:56 am

[...] You need to check out John DeGroote’s work on decision trees. You can find it here. [...]

Re-imagining Mediation |Tuesday, July 24, 2012 10:46 am

[...] many of our “tricks.” (How many of us know–really know–about tools like decision trees advocated by John [...]

Roy HuddleTuesday, August 7, 2012 2:29 pm

I guess it doesn’t work as well when there are high non-monetary factors, such as in family law cases, but thought I should ask.

Roy Huddle

John DeGrooteTuesday, August 14, 2012 10:13 am

Roy, this is a great question. I have used decision trees with great effect even in the presence of non-monetary factors — but one has to put a value on those factors. In family law cases there are things that don’t have a monetary value (such as custody), but there are things where a subjective value — a value to your client — can be inserted. For example, if both parties want a special coffee table, each party will need to consider what that coffee table is worth to them. At that point the monetary value will need to serve as a proxy for the coffee table as your client walks through the tree.

I hope this helps, and thanks for your note–

John DeGroote

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of John DeGroote.

I created this site to help clients and their counsel navigate the challenges that inevitably result from disputes, settlement efforts, impasse, and negotiation in general. The perspectives I bring are based on my experience, summarized in this abbreviated bio. If you have any questions or thoughts about this site, or an issue you’d like to see addressed, please email me at:


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