DECISION MAKING UNDER VARIOUS CONDITIONS
conditions for making decisions can be divided into three types. Namely a)
Certainty, b) Uncertainty and c) Risk
all decisions are made in an environment to at least some uncertainty However;
the degree will vary from relative certainty to great uncertainty. There are
certain risks involved in making decisions.
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.
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.
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.
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.
Virtually every decision is based on the interaction of a number of
important variables, many of which has e an element of uncertainty but,
perhaps, a fairly high degree of probability. Thus, the wisdom of launching a
new product might depend on a number of critical variables: the cost of
introducing the product, the cost of producing it, the capital investment that
will he required, the price that can be set for the product, the size of the
potential market, and the share of the total market that it will represent.