What are the conditions for Decision Making?

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As mentioned above, the process of decision-making involves selecting the most appropriate alternative out of the various alternatives that are available to the managers. At the same time, the decision taken by the managers at present will also have an effect on future. For this purpose, the decision-making process involves the visualization of the conditions that may be present in future. Therefore, it can be said that there is at least a certain amount of uncertainty present in the decision-making process. Certain risks are related with the process of decision-making and the conditions may also vary from certainty to complete uncertainty. Due to this reason, the strategy of making decisions under different conditions may also vary. Therefore the different conditions under which the decisions have to be taken can be described as follows:-

1. Certainty: When the certainty conditions are present, it can be reasonably expected by the managers what is going to happen when a particular decision has been taken by them. In this case, the required information is available and such information is also a reliable. In the same way, the cause and effect relationship is also known. The result is that the decisions taken by the managers under these situations at different times provide the same results. In these situations, the managers use a deterministic model, and it is assumed that all the factors are exact and there is no role for chance.

2. Risk: In a risk situation, although the factual information may be present but it can be insufficient. Mostly the managers have to take business decisions under risk situations. The reason is that the information available with the managers does not provide answers to the overall questions regarding the outcome of the decision. The manager is required to develop estimates regarding the likelihood of different events taking place. These estimates can be based on past experiences or on the other information or intelligence. Decision-making under these conditions can be improved if the managers can estimate the objective chances of an outcome by using certain methods like the mathematical models. On the other hand, the managers may also use subjective probability that is based on their experience and judgment. For this purpose, several tools are available to the managers that can help in taking decisions under risk conditions.

3. Uncertainty: In case of uncertainty conditions, very little information is available to the managers and the managers are not sure regarding the reliability of such information. Due to the reason that the managers do not have proper information, the managers should be aware of the fact that they are not in a position to predict the events. It is not available to the managers to evaluate the interaction of different variables for the purpose of making the decision. As a result, it becomes difficult to take a decision on this uncertainty conditions. However, there are certain techniques that can be used by the managers for making a better decision under uncertainty conditions. For example, they may use decision trees, risk analysis and preference theory for making the right decisions in uncertainty conditions.

This article has been written by KJ Singh a MBA Graduate from a prestigious Business School In India
Article Published:April 2, 2016
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