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Decision making is defined as a process to identify problems, generate alternative solutions, select the best solutions available and implement them. Alternately, it is a process of selecting a solution from a few alternatives. In the process of gathering information for making a decision, whether the decision is based on complete, incomplete or no information at all and this is one of the process in decision making. This will lead to making different type of decision outcome with different results and risks.
There are 3 types of decision making environment which categorized into certainty, uncertainty and risky. Each with it's own set result and answer will be obtained from the 3 types of decision making environment which is certainty, uncertainty and risky. In brief explanation, certainty would means that sufficient amount information has been gathered and the result outcome is known and depends on the manager to decide which to choose from. Uncertainty on the hand, means that the decision maker does not have any information and is uncertain of the outcome and heavily rely on his experience and discretion to make the decision. Finally, decision making in risky environment would be explained as that the decision maker has information but it is very limited or incomplete, hence they will not know for sure what will happen in the future or outcome of the decision.
As decision making is very much of a daily job for a company manager. Hence manager make decision on a daily basis and their result is based on the decision making environment available. They experienced it and gained from making each of the decision. This helps in their experiences and will prove to be vital in their job. Managers mostly play an important role in an organization and their decision is very important for the company or team of the manager. In this thesis I would be discussing the three decision making environment and examples would be give a complete understanding on each of the decision making environment. By the end of this thesis one would truly understand the definition and the meaning behind each decision making environment. With the given examples clear understanding can be achieve by readers of the thesis.
2.0 DECISION MAKING IN CERTAIN CONDITIONS
In this situation, the decision maker obtains the complete information in order to facilitate his decision making. Certain condition which means that enough information and complete details in making a decision are achieved. Result and outcome is known by the decision maker. Hence, clear result can be obtained from each of the decision made. Advantages of making decision in certain condition is that one would clearly know the result of each of the decision made. Clear result can be obtained in this decision making. Consequently, better result and outcome can be achieve in certain condition in this decision making. Example is given below to improve understanding and to allow readers to facilitate in the situation of a decision making environment.
An example of decision making in certain conditions is the following situation. In an investment company you have been offered two alternative investments. Investment A and Investment B, investment A gives a return of 7% in two years while investment B gives a 5% also in two years. This clearly shows that decision maker have suffice information to make decision based on the information obtain. In this situation, decision maker will have clear result of the outcome whether deciding to invest in investment A or B. In this decision making environment it is a certain that the investor will receive either 7% or 5% based on this environment.
In another example which revolve around our daily basis in purchasing an item or shopping for clothes or food. For example shopping for clothes between two given choice is also an example of decision making in certain condition as the buyer will clearly know the outcome of the decision made. For instance, item X and item Y, each with their own price and quality of an item. As an illustration, item X cost Rm150 while item Y cost Rm 200 both with their own quality. Item X may come with a lower quality compare to item Y. Hence, the buyer will know the outcome of the decision made and the item they have purchased. If the buyer chose item X he will receive an item that cost Rm150 with a lower quality compare to item Y. Certainly in this situation of the example, this is an example of decision making in certain environment where the buyer knows the result and outcome.
On the other hand, in another example, there is only one possible event for the two possible actions: "Do nothing" at a future cost of $3.00 per unit for 10,000 units, or "rearrange" a facility at a future cost of $2.80 for the same number of units. In these circumstances, it can be consider as decision making in certain environment because the outcome of the two result is known. The decision maker will have the choice to do nothing at a future cost of $3.00 per unit for 10,00 units if the decision chose this. Notably, both of the decision made will have different result but both of the result is clearly stated. These would allow the decision maker to easily decide on which to choose. Hence, this falls under the category of decision making in certain condition.
In addition to the few examples above, promoting an employee to a higher position can also be considered as a decision made under certain environment. This is because promoting an employee is considered certain because of the long serving or the excellent working attitude shown by the employee. It can be concluded in this decision making environment because that the manager made this decision to maybe reward the particular employee or to not lose the employee. In this decision only several result could be achieve by promoting or demoting the employee. As mentioned before promoting him would bring a positive effect on the employee and demoting him will only bring negative effect. Hence, it falls under the category of decision making under certain environment.
2.1 MAKING DECISIONS IN UNCERTAIN CONDITIONS
Besides the decision making environment discussed before, there is another decision making in uncertain conditions which means that information is so insufficient that managers can't even conclude to the likely outcomes of the alternatives. This is considered to be in uncertain environment and hence can be said as the condition which is most difficult for a manager. Decision making under uncertainty conditions is mostly being a pioneer in entering unexplored territory either in business or property development which is new to the market. It rely heavily on managers to solve this kind of uncertainty with creativity or unique or can be say totally innovative approach in handling this situation. Besides that, all the method above depend greatly on intuition and all leave considerable room for error. In other words, making decisions in uncertain conditions greatly rely on the skills and experience of decision maker as no data or information could help them.
For example opening a new branch is categorized in decision making in uncertain condition as it pioneer in a new unknown area which could lead to uncertainty to business revenue. This is because there is no information or data regarding the new area whether the new branch would generate enough income to cover the rental fees, monthly salary for workers and many more. Besides that, the amount of time for the investment revenue to turn profit is another factor for opening a new branch. For venture like this, it would greatly rely on the decision maker in choosing a suitable location for the new branch. This uncertain decision making environment would cause a massive impact on the decision maker as it is important to choose or decide a suitable location based on one experience in the geography of an area.
Launching a new product that caters to a different targeted buyer is also considered as decision making in uncertain condition. Like the example before, this is also one of the pioneering to a new market which is all but uncertainty. It could be a hit for the product or just a simple waste of revenue. This uncertainty could be explain in a detailed manner with example of a company which has been selling rattan products to the townsfolk people of klang and now wish to introduce a different ceramic product to the people there. In this situation, one could clearly see that there is no information or data in regard of the people of klang in accepting new ceramic product. Hence this situation is an uncertain making decision environment.
In addition to the few example given another example I would like to mention is that a major change in marketing strategy. A change which certainly means that a different kind of approach has been adopted by the company for a better good or to maximize the effectiveness of the current marketing strategy and this would lead to a decision making under uncertain condition. As a result, the company have venture out of its comfort zone and is betting on the change to benefit for the company. For example a company suffering from poor marketing strategy in pushing the product to end user may change its strategy but it is a decision made under uncertain environment which the company has no clue whether it will work.
Last but not least another example I would like to share which is for example at Vanguard group, employee are exhausted in their preparations for a number of events that could disrupt their investment business. Hence their biggest fear is an investor panic that overloads their customer service system server during the peak and hike of markets. Moreover, they do not know what else could eventually happen in the midst of the events. As a result they fall into making decision in uncertain condition.
2.2 MAKING DECISIONS IN RISKY CONDITIONS
In a risk environment, the decision maker lacks of complete information regarding the condition he is handling. This condition is now more difficult as a manager may understand the problem and the alternatives, but has no confidence in each solution will work. Only minimal information will be obtained and it will give a little insight of what about to happen with each of the decision made. Usually, this situation can only be assumed to occur or not based on the information obtained and the percentage of probability that each of the situation will happen. All these situation can be concluded in risky condition in a decision making process. All in all the decision made could prove to be on track or on the other hand may just not work as it expected to be.
In one of a few disaster which happened before on this very nature earth that could be highlighted as a mistake in making decision in risky conditions. One of it is the famous Chernobyl disaster where the government made a risky decision to build one of a few nuclear plant to generate electricity for its citizen. The plan however gone well in the early stage and received well recommendation on its advantages for the citizen. At the end, it proves to be wrong and the nuclear plant exploded as a result of lack in the maintenance sector. This could be one of the few example which clearly shown the decision made under risky environment which could benefit all or detrimental to all.
Besides that, another human caused environmental disaster due to the selection of wrong decision made in risky environment. As a result of the decision, Exxon Valdez an oil tanker has collided with barrier reef causing spill that has damaged the environment ever since. This is due to the decision made in risky environment where the decision maker does not have suffice information and continue with the plan and it backfired causing the spill. The decision made in this is mainly for the profits of the company disregard the risk it carries in shipping of oil. Hence, it clearly shown that this is one of the example of decision made under risky environment and ended causing damage to the mother nature.
On the other hand, another example can be shown in a sales related company from the monthly sales statement that it has been noticed to increase each month. Therefore, one would assume that the company has been making profits from the sales. Without obtaining other information such as operational cost, change in consumer market, loan interest and many more, Then one states that the probability of company making profits is 70% and the company will make losses is 30%. With this, the decision maker decided to invest more, hence a risky decision has been made due to the lack of research and information.
To demonstrate, another example will be given to improve understanding on decision making in risky environment. In a shopping store, the store manager has noticed the increase of sales in the handbags department and hence he quickly placed another unusual big order to replenish the stock thinking the sales would continue to increase. But not forget that the particular department of shopping store might been having sales or promotion over the item to push the sales for the handbag department. Thus, it might be a correct decision to placed a big order or a wrong one. Consequently it puts the store manager in a risky decision making environment where he placed an order not knowing the reason behind the increment of sales.
With all of the example given in each of the decision making environment, it clearly shown that different decision making environment have a different impact on the result or decision made. For example decision made under certain condition would allow the decision maker to clearly foresight what is the result of each of the decision. Hence, a better decision could be made in order to benefit him. In another words, decision made under uncertainty would have a different result compare to risky and certain condition. This is because the decision maker has no information whatsoever in regard to the decision he is about to make. Thus, this could put the decision in a real gamble and the decision to be in a fifty-fifty situation.
Last but not least, the decision made under risky environment has the biggest risk of all as the name implies. The decision maker could jeopardize the whole company with just a simple risky decision. In conclusion, all of the decision making environment has its own impact in regard of the result and it is clearly points to the decision maker. If it's under an experienced decision maker with creative thinking, there's a chance that the company will be in good hand. With each of the decision making environment explained, it is vital to gather all possible information in every possible way in order to make a good decision.