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Decision-Making Environment

Environment of decision-making represents the known and unknown environmental variables within which decisions are made. Some decisions are taken in situations of complete certainty and others in the situation of complete/partial uncertainty. Decision-making environment represents the situations in which decisions are made. This environment represents three situations:

1. Certainty:

In the environment of certainty, decision-makers have complete and reliable information about future. Information is reliable, correct and not too expensive. Results of each alternative can be predicted and therefore, managers can choose the best course of action.

Such a station does not exist in reality. In fact, managers make decisions on those aspects of environment about which information is available. They ignore the rest and call it a situation of certainty.

2. Risk:

This represents a situation where information about environment is incomplete. It is not even completely reliable. Alternative courses of action can be developed but outcome of decisions is not known. The expected results are not deterministic but only probabilistic. Past usually provides the basis for future outcomes. Decision to introduce a new product in the market has the risk of competition which managers foresee before introducing the product. However, the exact degree is not known. Most decisions are taken in the situation of risk.

3. Uncertainty:

It is a situation where no information is available about future. Whatever information is available, it is not reliable. Decision alternatives are totally unpredictable. Outcomes of decisions cannot be predicted. Decision is based on managers’ intuition and judgment. Some of the uncertain elements in the environment are economic, political, technological and natural changes. These changes cannot be predicted and accounted for in the decision-making processes.

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