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Chapter: Principles of Management : Planning

Decision Making Under Various Conditions

The conditions for making decisions can be divided into three types. Namely a) Certainty, b) Uncertainty and c) Risk

Decision Making Under Various Conditions


The  conditions  for  making  decisions  can  be  divided  into  three  types.  Namely  

a)  Certainty, b) Uncertainty and c) Risk


a)  Certainty: In a situation involving certainty, people are reasonably sure about what will happen when they make a decision. The information is available and is considered to be reliable, and the cause and effect relationships are known.


b)  Uncertainty: In a situation of uncertainty, on the other hand, people have only a meager database, they do not know whether or not the data are reliable, and they are very unsure about whether or not the situation may change. Moreover, they cannot evaluate the interactions of the different variables. For example, a corporation that decides to expand its Operation to an unfamiliar country may know little about the country, culture, laws, economic environment, and politics. The political situation may be volatile that even experts cannot predict a possible change in government.


c)  Risk: In a situation with risks, factual information may exist, but it may be incomplete. 1o improve decision making One may estimate the objective probability of an outcome by using, for example, mathematical models On the other hand, subjective probability, based on judgment and experience may be used All intelligent decision makers dealing with uncertainty like to know the degree and nature of the risk they are taking in choosing a course of action. One of the deficiencies in using the traditional approaches of operations research for problem solving is that many of the data used in model are merely estimates and others are based on probabilities. The ordinary practice is to have staff specialists conic up with best estimates.

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