Levels of Certainty in Management Decision Making
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What are the Conditions for Management Decision Making?
Conditions for decision making are common for all individuals. Decisions, however, are subject to conditions of certainty. That is, any decision will vary in the extent to which the decision-maker knows the outcome of the decision. In management, these conditions are best understood in the context of how managers make each decision.
- Certainty - A decision that is relatively certain can be made based upon the desired outcome. For example, a decision to loan or borrow money can be based on a specified rate of interest. This decision is based on the relative certainty of the amount of money that will be generated or expended by the decision.
- Uncertainty - Uncertain decisions have either a probable or completely unknown outcome. If a decision has a probable outcome, a manager can make a decision based upon the desired result. Approaches to uncertain decisions might include the Expected Value, Maximax, Maximin, or Minimax.
- Complete Uncertainty - A completely uncertain outcome is when the value or probability of occurrence cannot be accurately assessed. In this type of situation, managers must make a decision that is not based upon the probable outcome. This may include operational ability, resource allocation, superior/subordinate buy-in, etc.
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