Environment of Decision Making

It is said that every manager’s primary responsibility is decision-making. Managers follow a sequential set of steps to make good decisions that are in the interest of the firm. This process is known as decision making process. However, the decision making environment is also an important factor in the process. Let us learn some important aspects of the Decision making environment.

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Decision Making Environment

The quality of the decisions made in an organization will dictate the success or failure of the said business.

So all the available information and alternatives must be studied before arriving at an important decision. The process of decision making will help a great deal.

Another factor that affects these decisions is the environment in which they are taken. There are a few different types of environments in which these decisions are made.

And the type of decision making environment has an impact on the way the decision is taken. Broadly there are three basic types of decision making environment. Let us take a brief look at each of them.

1] Certainty

Such type of environment is very sure and certain by its nature. This means that all the information is available and at hand. Such data is also easy to attain and not very expensive to gather.

So the manager has all the information he may need to make an informed and well thought out decision. All the alternatives and their outcomes can also be analyzed and then the manager chooses the best alternative.

Another way to ensure an environment of certainty is for the manager to create a closed system. This means he will choose to only focus on some of the alternatives.

He will get all the available information with respect to such alternatives he is analyzing. He will ignore the other factors for which the information is not available. Such factors become irrelevant to him altogether.

Learn more about Quantitative Techniques of Decision Making here in detail

2] Uncertainty

In the decision making environment of uncertainty, the information available to the manager is incomplete, insufficient and often unreliable.

In an uncertain environment, everything is in a state of flux. Several external and random forces mean that the environment is most unpredictable.

In these times of chaos, all the variables change fast. But the manager has to make sense of this mayhem to the best of his ability. He must create some order, obtain some reliable data and make the best decision as per his judgment.

3] Risk

Under the condition of risk, there is the possibility of more than one event taking place. Which means the manager has to first ascertain the possibility and probability of the occurrence or non-occurrence of the event.

The manager will generally rely on past experiences to make this deduction.

In this scenario too, the manager has some information available to him. But the availability and the reliability of the information is not guaranteed. He has to chart a few alternative courses of actions from the data he has.

Solved Question on Decision Making Environment

Q: What is the decision tree?

Ans: Decision making is the core function of management. New tools for analysis that aid decision making are being developed. One such tool is the decision tree. It is essentially a visual graph that uses the branching method to map every possible outcome of a particular decision.