Conditions of decision-making

Conditions of decision-making are main factors influencing managers during decision process. There are three general conditions: certainty, risk and uncertainty. Manager, preparing a decision, must take into account: type of decision and specific conditions which may occur in business environment. Turbulence and the unpredictability of economic life, makes uncertainty most common condition of decision making.

Conditions of certainty in decision making

A condition under which taking a decision involves reasonable degree of certainty about its result, what are the opportunities and what conditions accompany this decision.

It boils down to the fact that the manager sees all the possibilities and risks of possible alternatives, which in the simplest example, there are two. Unfortunately there is little organizational decision be taken in conditions of genuine certainty. Cyclic decisions bear a certain degree of certainty, but if the recurrence is upset (for example through the bankruptcy of one of the suppliers) the decision-making process must be carried out with a certain amount of risk, and this is due, first of all, a wide range of possibilities, secondly, ignorance of the other actors, secondly a continuous volatility and unpredictability of market changes.

Making decision under the conditions of risk

Fig. 1. Conditions of decision making

A condition in which the availability of the various opportunities and associated with each of them the potential benefits and costs are known with some estimated probability.

Important here is the ability to predict by the manager, the potential results of the actions. Managers should skilfully use own individual qualities such as intuition, and capitalize on the experience of the past. Risk condition is accompanied by the average level of confusion and moderate risk of taking the wrong decision. Scientists link this type of condition with gambling. In management, risky decision is being made knowing the opponent cards, at least in a substantial part of it. On the other hand, it is not known what effects can bring decision preferring either party.

Conditions of uncertainty in decision-making

A condition in which decision maker does not know all the choices, as well as risks associated with each of them and possible consequences.

In this condition most of today's serious decision are being made. The dynamics of economic life determines the managers to decide without knowing all alternatives, as well as knowledge of the risks associated with the known alternatives. Such situation is associated with a very high probability of erroneous decision, which could trigger a counterproductive effects. First of all, in order to reduce the risk: managers should collect as much relevant information, and then try to make rational and logical choice. Intuition, correct judgement and experience are in such conditions, the priority, although you should not forget about other methods that may help to decide.

Examples of Conditions of decision-making

• Certainty: A manager making a decision in a certain situation has all the information needed to make an informed decision, and can predict the outcome with a certain degree of accuracy. An example of this could be setting a budget for a project. The manager has access to the resources and data needed to make an accurate forecast of the budget and the final cost of the project.
• Risk: A manager making a decision in a risky situation has some, but not all, of the information needed to make an informed decision. The manager is aware that the outcome may vary and may not be as expected. An example of this could be investing in a new product line. The manager has access to the resources and data needed to make an educated guess as to the success of the product, but there is no guarantee of success.
• Uncertainty: A manager making a decision in an uncertain situation has no information about the outcome and cannot make a reliable prediction. An example of this could be a decision to enter a new market. The manager has no data or resources to accurately predict the success or failure of the venture, and must make a decision based on their judgement.

Advantages of Conditions of decision-making

The following are the advantages of conditions of decision-making.

• Certainty - Certainty allows managers to make decisions with more confidence, since they have a much clearer idea of the likely outcome of the decision.
• Risk - With risk, managers are able to consider the potential for rewards and losses and adjust their decisions accordingly. This helps managers to make well-informed choices with more accuracy.
• Uncertainty - Uncertainty provides an opportunity for managers to be creative and to think outside the box in order to identify potential solutions. It also allows managers to make decisions that may be more innovative and creative than those made under more certain conditions.

Limitations of Conditions of decision-making

One of the limitations of conditions of decision-making is the fact that they are often too general and do not always take into account the specific needs of the business. The following are some of the limitations of decision-making conditions:

• The conditions often lack the necessary detail to make an informed decision. This can lead to decisions being made without sufficient information or data, which can have negative consequences.
• The conditions can be too rigid and not provide enough flexibility to accommodate changing circumstances. This can lead to decisions that are too rigid or inflexible to be effective.
• The conditions may not always take into account the unique needs of the business, which can lead to decisions that are not appropriate for the situation.
• The conditions may be overly simplified, which can lead to decisions that do not adequately address the complexity of the situation.
• The conditions may be too abstract, which can lead to decisions that are not applicable to the real-world situation.

Other approaches related to Conditions of decision-making

• Rationality-based approach: This approach views decision-making as a rational process, where the manager seeks to identify the best possible solution. This requires that the manager considers the problem from all angles and weighs the various pros and cons before coming to a conclusion.
• Intuition-based approach: This approach relies on managers' intuition and experience to make decisions. It is a more informal approach, as the manager is not necessarily considering all the available options and facts.
• Business process approach: This approach utilizes business process models to determine the most suitable decision. It involves analyzing the situation and breaking it down into its components, in order to identify the most feasible solution.
• Goal-oriented approach: This approach sets out to achieve a specific goal, and the decisions taken are intended to move the organization closer to that goal. It is a more hands-on approach, as the manager is responsible for ensuring that the decisions taken are in line with the goal.

In summary, different approaches to decision-making can be used depending on the situation. Rationality-based, intuition-based, business process, and goal-oriented approaches are all valid methods that can be used to make effective decisions.

Conditions of decision-making — recommended articles

Rational decision making — Decision process models — Quantitative risk analysis — Decision making — Model of creativity — Uncertainty and risk — Subjective probability — Bias for action — Operational decision

References

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• Slovic, P., Peters, E., Finucane, M. L., & MacGregor, D. G. (2005). Affect, risk, and decision making. Health psychology, 24(4S), S35.