Types of Decision Making Environment

Success and failure in personal and corporate life is depends on decision making. Quality decision making is done considering all available data and alternatives and it is performed through various management functions. In our daily life we often face situation where we need to take decision where some people seem very difficult, complicated and some seems very easy.

Making decision is not an easy task, a wrong decision will impact you badly while making a good decision will helps you, benefits you, increase confidence and build respect.

Who makes decision:-

Authorized person

Can be delegated by rules

Aids to decision making:-

A] Intuition

B] Experience

C] Facts and figures

This type of decisions may take under various environments. Decision making environment classifies in following five environments

1] Open system

2] Closed system

3] Decision making under certainty

4] Decision making under uncertainty

5] Decision making under risk

1] Open system:- Assumption of this systems are as follows:

Decision maker doesn’t know all alternatives and outcomes

He / She acts in an unknown environment

Makes a limited search to discover a few satisfactory alternatives

No model is available to finalize decision among all available alternatives

Example: – Deciding price of the product

2] Closed system: – In this system decision maker operates in a known environment. He logically examines all alternatives which are completely known and select the alternative which leads to the best result.

It works on following assumptions:

All alternatives and alternatives are completely known

Decision maker seeks to maximum profit

Decision maker has a model or method whereby the decision alternatives can be generated and tested

Example: – Exam system

3] Decision making under certainty: –

Decision maker knows all the effects and alternatives, certainty exist

Have complete information

Decision maker able to predict what the decision result will lead into

He / She able to make accurate decision when such environment exists

4] Decision making under uncertainty: –

Decision maker does not know about the alternatives and their outcomes

Have lack of information

Decision maker doesn’t know the future and not able to predict the outcome of every alternative he has

Decision maker may not have experience to handle the task

5] Decision making under risk: –

This situation occurs when decision maker can not predict alternatives, outcomes with certainty

It may be due to incomplete information or have to predict the probability

A wrong evaluation

There are more than one possible course of action and can select which can have maximum expected value

 

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