Condition of decision making

There are different conditions in which decisions are made. Managers sometimes have an almost perfect understanding of conditions surrounding a decision, but in another situation, they may have little information about those conditions. Generally, the decision-maker makes a decision under the condition of certainty, risk, and uncertainty.

1. Certainty

Certainty is a condition under which the manager is well informed about possible alternatives and their outcomes. There is only one outcome for each choice. when the outcomes are known and their consequences are certain, the problem of decision is to compute the optimum outcome. The condition of certainty exits in case of routine decisions such as allocation of resources for production, payment of wages and salary, etc. There are little ambiguity and a relatively low chance of making an impractical decision.

2. Risk

A more common decision-making condition is a state of risk. In such a condition, managers have knowledge about an alternative course of action but outcomes are associated with probability estimates. It is more difficult to predict future conditions without fill information, so the outcome of an alternative cannot be accurately determined. They can choose an alternative with the highest expected outcome.

3. Uncertainty

A state of uncertainty occurs when managers are unaware of the problem they face. They do not know all the alternatives, the risk associated with them, or the likely consequences of each alternative. This uncertainty arises from the complexity and dynamism of contemporary organization and their environments. A manager has limited information to calculate the degree of risk, so statistical analysis is not possible.

To make an effective decision in uncertain conditions, managers must acquire as much relevant information as possible and approach the situation from a logical and rational perspective. Intuition, judgment, and experience always play a major role in the decision-making process. However, a decision under uncertain conditions is the most ambiguous condition for managers and there is more possibility of error.