5.2 Decision Making Conditions

Decision making occurs in different contexts and under different conditions.

Certainty – A manager may know all the alternatives available and know the outcome for each alternative.  For example, when deciding whether to order inventory, a manager may know how much they have in stock and how much they need to hold.

Risk – When there is risk, a manager knows the alternatives but does not know for certain the outcomes.  There may be a probability associated with each outcome.  For example, a sales manager may have to decide how much sales time should be allocated to each account.  There may be different revenue numbers associated with each account and a different probability of closing the sale.

Uncertainty – In these situations, the manager may not even know all the alternatives.  For example, you import parts from China and the U.S. places a tariff on those parts.  This is a situation where a manager’s problem-solving skills come in to play.