If there’s one thing that is constant in life, it is that the only real certainty is uncertainty. And never has that been truer than now. In the past six months, the most immaculate plans of business leaders and policymakers failed because of the COVID-19 pandemic.
With uncertainties and risks looming at every corner, how do we make long-lasting decisions?
Well, there is always a method to the madness, and a careful and strategic approach can help you in decision-making under uncertainty. Let’s find out about this in detail.
Decision-Making Under Risk And Uncertainty
Making decisions under certainty is easy. The cause and effect are known, and the risk involved is minimal. What’s tough is making decisions under risk and uncertainty. The outcome is unpredictable because you don’t have all the information about the alternatives. Before we learn deeper about decision-making under risk and uncertainty, let’s look at each of these situations:
Sometimes we have enough facts and evidence to know the possible results of a decision. These are the most conducive situations for decision-making because the outcomes are quite obvious. For instance, if you drop a glass full of milk, the milk will definitely spill. Such an environment is known as certainty.
Risk is where you are unsure of what can happen, but you know the likelihood of a particular outcome. Let’s say you invest in a promising stock and the stock market is on a surge. In such a scenario, you see a higher chance that your investment will grow. However, you don’t know the extent to which it can grow. It might double or increase by 10% and in the worst-case scenario, you might even lose money if the market crashes. Taking a decision under such circumstances is known as decision-making under risk.
In case of an uncertain environment, you can’t predict the outcomes as you have no information or data available. You have no control over what might happen and don’t even know the options you have.
It is like driving blindfolded where you know you need to move but don’t know the type of vehicle or the road you will be taking. Such a scenario will lead to decision-making under uncertainty.
Now let’s take a look at the process of decision-making under risk and uncertainty:
Decision-Making Under Risk
There are times when you need to make decisions even when you don’t have adequate or credible information or when the information obtained from different sources doesn’t match up.
This happens when you don’t know for sure how each of the alternatives will pan out and whether you will be able to achieve the goal by taking a particular decision. However, you have enough understanding to know how likely each option is to be successful.
It is this likelihood or probability of each of the options that a manager needs to take into account and apply experience, expertise, and gut feeling to the process of decision-making.
Decision-Making Under Uncertainty
Despite all the data crunching and predictive technology, businesses these days have to deal with a lot of uncertainty and the ‘what if’ scenarios.
The recent pandemic outbreak has dramatically altered the business landscape globally. Today, decision-making has become more complicated due to the uncertainty all around us.
Let’s say you want to open a couple of new stores for your retail chain, and you have an idea about the average footfall or the earning that an average outlet generates. Yet, there is a lot of uncertainty as the operational procedures and customer behavior has become unpredictable.
Hence, you are compelled to undertake decision-making under uncertainty.
However, decisions under uncertainty are different from decision-making under risk. In the latter case, you are not even aware of all the options you have, the risks that each alternative poses, and the outcomes of all of these options. In fact, you are not even aware of the probabilities when you opt for decision-making under risk.
It becomes imperative for managers to use their experience and make assumptions about the situation and the outcomes while making decisions under uncertainty. However, they have to rely less on their individual judgment while indulging in decision making under risk.
Risk and uncertainty in decision-making are integral to modern business operations. However, by opting for a specialized course on decision-making under risk and uncertainty, Harappa Education’s Making Decisions course, you can learn the art of making better decisions at all times. The course has a section on The Uncertainty Toolkit which provides insights and information about various techniques that you can adopt in an environment of risk and uncertainty in decision-making. The module uses a mental model that specifically prepares you for the uncertainty about decision-making. It is an easy-paced online course that you can complete from your home’s safety and become an efficient decision-maker. Sign up now and sharpen your decision-making skills.
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