Decision Making Conditions

Decisions are made under one of three conditions: certainty. risk, and uncertainty. These conditions are based on the amount of knowledge the decision maker has regarding the final outcome of the decision.

Certainty: Under conditions of certainty the manager has enough information to know the outcome of the decision before it is made. For example, the managing director of a company has just put aside a fund of Tk. 10,00,000 to cover the renovation of all executive offices. This money is in kept in a savings account at a local Jamuna Bank that pays 7.50 percent profit. Half of the money will be drawn out next month and the rest when the job is completed in 90 days. Can the managing director determine today how much interest will be earned on the money over the next 90 days? Given the fact that the managing director knows how much is being invested, the length of investment time, and the interest rate, the answer is 'yes'. Investment of the funds in a Jamuna Bank branch is a decision made under conditions of certainty. The ultimate outcome in terms of interest is known today.

Risk: Most managerial decisions are made under conditions of risk. Risks exist when the individual has some information regarding the outcome of the decision but does not know everything when making decisions. Under conditions of risk, the manager may find it helpful to use probabilities. To the degree that probability assignment is accurate. he or she can make a good decision.

Uncertainty :Uncertainty exists when the probabilities of the various results are known. The manager feels unable to assign estimates to any of alternatives. While the situation may seem hopeless. mathematical techniques have been developed to help decision makers deal with uncertainty. Some of these are heavily quantitative in nature and outside the scope of our present consideration. Some non mathematical approaches have been developed to supplement these techniques. how and they do warrant brief discussion. One is simply to avoid situations uncertainty. A second is to assume that the future will be like the past assign probabilities based on previous experiences. A third is to gather information as possible on each of the alternatives. assuming the that the decision-making condition is one of risk. and assign utilities accordingly.

Using these approaches actually requires side-stepping the uncertainty . It is assumed not to exist; and this can be a wise philosophy. After by definition, uncertainty throws a monkey wrench into decision making. The manager's best approach is to withdraw from this condition r by gathering data on the alternatives or by making assumptions that the decision to be made under the condition of risk.

Although many managers are perfectly comfortable making decisions under conditions of risk or uncertainty, they should always try to reduce uncertainty surrounding their decisions. They can do so by acting comprehensive and systematic research. The research can tell more about their alternatives, give them a firmer basis for estimating liable outcome and help them look at the best and worst alternatives.