Decision making environment

decision environment is defined by the information available, knowledge

of the situation, nature of the problem, and whether there’s a certainty,
uncertainty, or risk to which the decision is made under. 

Decision-making environments are important because they help us

generalize the scenarios we face. Even though we face new
situations every time we need to decide something, if we take a
look at it broadly, there are only a few types of environments and
every situation will eventually be falling into either of those types.

So, if we analyze every environment keenly and devise strategies

for tackling their situations beforehand, it’ll help us a lot in making
more effective decisions within a short period.

Types of Decision-Making Environments

Now, let’s look at the different types of decision-making environments that you could run into.
While going through each type, I’ll also be explaining its significance and how it could affect the
organization.

There are three types of Decision Making Environments:

 Certainty
 Uncertainty
 Risk

Decision-Making Under Certainty
Coming on top, we have certainty. This is often regarded as the
safest decision-making environment and, consequently, the least
risky. There aren’t many possibilities or paths to pursue when
you’re faced with decisions in such an environment. All the data
you need is readily available, or even if you need to gather it, it
won’t be much expensive to get. The variables are all clear, and
there are no hidden factors that could endanger your decision.

For example, consider you’re a manager and need to make a

decision based on certain factors; In the case of certainty, you will
have all the alternatives completely sorted out, and there won’t be
much to worry about. The analysis of all the possible decisions
would be done, and there would be no hidden variables. As a
result, the right decision would be quite easy to distinguish from
the rest.

Certainty lets you put more focus on what’s right and avoid wasting
time on other alternatives. You don’t waste time thinking about
different scenarios. Such scenarios are heaven for managers, and
they don’t take long to get done with decisions in such
environments.

2. Decision-Making Under Uncertainty
As you might have guessed, this is quite the opposite of the
previous type of environment we looked at. Uncertainty is when a
manager fails to get enough information needed to make a sound
decision, or even if he does, it’s corrupted, biased, or has
unreliable sources.

This decision-making environment is a nightmare for managers.

Not only does it get very confusing about what path to follow, but
when you start thinking in a certain direction, other possibilities
start clouding over its authenticity and seeming more appropriate.

The variables and the data available are not credible; they keep
changing and hence making the decision-maker panic. Such
situations need the managers to be able to handle pressure and
make the best out of any situation. A combination of a proactive
approach with effective stress-management is required.

Let’s consider an example; 

Consider you’re a football team coach. There are two players of

your team playing on the field. By the end of the match, you need
to kick one of them out. However, the problem is, both are playing
at the best of their abilities, and it’s hard to separate them.

One of playing better in an instant, and the next minute, the other
one exceeds him. Since their performance isn’t following a certain
trend or pattern, it gets tough for you to choose which one to kick
and which one to keep. 

This type of decision-making environment is referred to as

uncertain since a lot is going on, which leads to nothing but
confusion.

3. Decision-Making Under Risk
The last type of decision-making environment is risky
environments. Risk environments are when the probability of
multiple events is tied to a decision. You’re never sure about the
outcomes of your decision other than calculated guesses. Such
decisions are associated with events that could either be very
successful or quite disastrous for the organization.

When you’re faced with such problems, you will have some data
available related to the situation, but it’s all a game of probabilities.
The past experiences of managers play a huge role, and they
often have to take a good look at their past when confronted with
such decisions.

The best course of action to take in risky environments is first

analyzing the risk of all the alternative actions based on the
information available to you. 

Once you have done the risk calculation for all the possible

alternatives, choose the one with the smallest amount of risk
involved.

Nowadays, almost every decision made in huge organizations is

based on risk factors. This is the reason why there are whole
departments dedicated to risk management. Moreover, hundreds
of tools are available that help you with risk calculation if you have
enough information, which makes it relatively more manageable
than it would’ve been otherwise.

Which Decision-Making Environment is the Riskiest?

So, coming to the real deal, which decision-making environment is the riskiest? What type of
environment poses the greatest threat to your decision-making capabilities? Well, let’s see.

First off, it’s pretty evident that certainty is out of the equation when it comes to the riskiest
decision-making environments.

As we’ve seen, certainty doesn’t need a lot of pondering over the possible decisions, and mostly
the decision-maker ends up being right. There are pretty rare chances someone could make a
wrong decision in this environment.

So, we’re left with two environments: risk and uncertainty. Both include quite a bit of confusion,
and most of the real-life scenarios are based upon them. The data and information available are
mostly irregular or incomplete, and managers need to have adequate experience while dealing
with such situations.

When we talk about decision making under risk, there are probabilities associated with each
alternative, and one could use the calculations to be confident about the decision being made.
However, there’s no such concept in uncertain environments. No matter what you do and which
approach you follow, things always look blurry, and it doesn’t take much to fall into the wrong pit.
So, it’s much easier to make decisions under risk or in risky environments than in uncertain
environments. Hence, uncertainty comes out on top as the riskiest environment to make
decisions, and there should be appropriate steps and precautions taken when faced with such
situations.

Let me give you some real life example of these two types of decision-making environments:

Imagine that you are about to open a shop or a new branch of your business in a new location and
there’s no information about that location online, or in nearby registries. You are the decision-
maker, and so far you’ve only heard rumors that it’s a high potential location.

a) Do you decide for opening that branch without prospecting it or not? Will it bring good revenue?
(If you do it right away, there’s a lot of uncertainty here and your decision is likely to backfire)

b) You send someone to prospect the area and gather as much information as possible. After that,
it comes to light that there are logistic challenges, due to road access, in the rainy season, goods
deliveries cost higher. (If you decide to go ahead, at least now you know what Risk you need to
mitigate and you’re better equipped to deal with it and succeed)