Conditions of Decision Making
Managers make several decisions during the course of business activities. Sometimes they are sure about the future conditions but sometimes they have difficulty estimating the future conditions.
It is important for the manager to know in which condition the decision is to be made. A decision made relating to the situation helps to adjust to that situation. There are three conditions of decision making. They are:
Let’s take a deep look,
Condition of Certainty
A certainty condition of decision making is a situation where a decision-maker is conformed to what will happen when a decision is being made. It is a condition where the future is 100 percent sure.
The future situation is confirmed because of the availability of reliable information and their cause and effect are known. Due to known conditions, there are no conflicts in decision-making. Similarly, it saves time in decision-making.
As we know, to make a decision we choose the best course of action from available alternatives. Here one best alternative is selected and its outcomes are also known which provides the optimum outcomes.
This condition exists in routine decisions such as day-to-day activities, payment of wages, salaries, etc. Another example is when a person is going to buy a car, he can collect all the relevant information about that car, and he gets confirmed what type of car he is buying.
Therefore, it is easy and simple to make a decision in the condition of certainty and there is less chance of ambiguity.
Condition of Risk
In the condition of risk, the decision-maker is aware of alternatives but not of their outcomes or consequences. Here the future condition can not be estimated correctly. It is a condition where the future is sure but less than 100 percent.
There are chances of both conditions either the decision which is made leads to success or leads to failure. In other words, there is a 50/50 between success and failure.
Due to incomplete information, it is difficult to predict future conditions for the manager. So to get full information he can collect the required information through research, knowledge, experience, and other available information. After collecting the information it can be analyzed through judgment and statistical analysis and the alternative which has the highest expected outcome can be selected.
It is quite difficult and time-consuming to make a decision in a risk condition as compared to the certainty condition. And, there is a chance of ambiguity and impractical decisions.
Condition of Uncertainty
Uncertainty is a situation where the decision-maker has very little information available about the alternatives. Which is not enough to take an action plan.
Due to the unavailable information, the manager is unaware of the situation he is facing, he is unknown of the consequences associated with the alternatives. Uncertainty arises due to a lack of information, the introduction of a new product or service, the adoption of new technology, etc. It creates difficulty to understand the environment, predict the future and make a decision.
Thus to make a good decision a manager must collect the relevant information as fast as possible. Because of not enough information statistical analysis is not possible here. Qualitative tools such as judgment, intuition, and experience play a vital role in the collection of information in an uncertain situation.
After that decision can be made in the condition of uncertainty, but, there is more chance of an ambiguous future and more possibilities of error.
Therefore we may conclude that, in the conditions of decision making, the errors can be ranked as:
- Certainty – almost no future error
- Risk – there can be future error
- Uncertainty – chances of high error