Conditions of Decision-Making: Certainty, Risk, and Uncertainty

Decision Making Conditions

When you make any decision how many conditions do you have? Facing different conditions while making a decision whether in personal or professional life is common.

Managers in their working tenure make several decisions as per necessity. Sometimes they fully know what they are taking and its outcomes, sometimes they have probable situations, and sometimes they are fully unaware of their decisions and outcomes.

Normally, conditions of decision-making are of three types that managers deal with certainty, risk, and uncertainty.

Certainty Condition

The certainty condition of decision-making is the most favorable condition for managers or decision-makers. It is a condition in which the manager is sure about what the alternatives are, what conditions are associated with these alternatives, and what outcomes will come.

Due to the availability of the right information and their effect and causes known managers are able to make the right decision. The condition of certainty makes managers easy to make the right decision and implement it in a better way.

For example, when you FD your money in the bank, you will be sure how much interest you earn, and how much money you will have when your FD matures. This is the condition of certainty in decision-making.

In such conditions, the chances of making the wrong decision and ambiguity are very low. However, increasing challenges in the contemporary business world, complexity, and tolerance conditions of business would make such conditions rarely found in practice.

Risk Condition

The risk condition of decision-making lies between the certainty condition and uncertainty condition. In simple words, the manager is 50/50 about the success or failure of his decisions.

In a state of risk, the manager is aware of the available alternatives but he is unaware of the outcomes of the decisions he makes. As such in a state of risk, there are higher chances of making wrong decisions than certainty condition.

Related: What is Decision Process?

In the risk condition, managers can not predict the future correctly. Due to the incomplete information managers are not able to correctly forecast the future.

To come to a decision in a risk state, managers must use their skills and knowledge, do research, and determine probable outcomes of each alternative.

They should choose an alternative that has the most favorable outcome. However, such decisions are subjective in nature as no decision criteria are fully reliable.

Uncertainty Condition

Uncertainty condition is the utmost undesirable condition for decision-makers. It is a condition where the manager is unaware of the alternatives, conditions associated with such alternatives, and outcomes.

Due to the unavailability of information, using the statistical tool is difficult, and testing of probable outcomes of such alternatives is also difficult. As such there may not be possible to calculate the probabilities in a dynamic environment.

The possibility of making wrong decisions is higher in this condition than in both certainty and risk conditions. Intuition, experience, creativity, and judgment play an important role in the decision-making process under certain conditions.

Usually, the condition of uncertainty arises when a company introduces an innovative product, enters a totally new market, changes its marketing strategy, etc.

Difference Between Certainty, Risk, and Uncertainty Conditions of Decision-Making

You certainly have understood what concepts lie in these conditions. However, the main difference between them is mentioned below:

• Certainty Condition – The alternatives and outcomes are known. The achievement of desired goals is almost 100 percent.
• Risk Condition – The alternatives are known but the outcomes are not sure. The desired goals can be or can not be achieved.
• Uncertainty Condition – Both the alternatives and outcomes are unknown. There is a higher failure rate of the decision.

Read Next: Approaches To Decision Making