Decisions taken are with certainty, risk, uncertainty and ambiguity.
One primary difference between programmed and non-programmed decisions relates to the degree of certainty or uncertainty that managers deal with in making the decision. In a perfect world, managers would have all the information necessary for making decisions. In reality, however some decisions will fail to solve the problem or attain the desired outcome. Managers try to obtain information about decision alternatives that will reduce decision uncertainty. Every decision situation can be organized on a scale according to the availability of information and the possibility of failure. The four positions are certainty risk, uncertainty and ambiguity. Whereas programmed decisions can be made in situations involving certainty many situations that managers deal with every day involve at least some degree of uncertainty and require non-programmed decision making.
Certainty means that all the information the decision maker needs is fully available. Managers have information on operating conditions, resource costs or constraints, and each course of action and possible outcome. For example, if a company considers a Rs 1,000,000 investment in new equipment that it knows for certain will yield Rs 4,000 in cost savings per year over the next five years, managers can calculate a before tax rate of return of about 40 per cent. However, few decisions are certain in the real world. Most contain risk or uncertainty.
Risk means that a decision has clear cut goals and that good information is available but the future outcomes associated with each alternative are subject to chance. However, enough information is available to allow the probability of a successful outcome for each alternative to be estimated. Statistical analysis might be used to calculate the probabilities of success or failure. The measure of risk captures the possibility that future events will tender the alternative unsuccessful. For example, to make restaurant location decisions, a restaurant chain can analyse potential customer demographics, traffic patterns, supply logistics, and the local competition and come up with reasonably good forecasts of how successful a restaurant will be in each possible location. General Electric Aircraft Engines (GEAE) took a risk on the development of regional jet engines, the engines that power smaller planes with seating for up to 100 and ranges of up to 1,500 miles. Based on trends in the environment GEAE’s managers predicted that use of regional jets would grow, so they invested more than $1 billion in new engine technology at a time when no one else was paying attention to the regional jet market. The decision paid off as full service carriers have declined and smaller regional and low fare airlines have grown. GEAC finds itself in an enviable position, with a virtual lock on one of the few growing market segments in commercial aviation.
Uncertainty means that managers know which goals they wish to achieve, but information about alternatives and future events is incomplete. Managers do not have enough information to be clear about alternatives or to estimate their risk. Factors that may affect a decision, such as price, production costs, volume or future interest rates are difficult to analyse and predict. Managers may have to make assumptions from which to forge the decision even though it will be wrong if the assumptions are incorrect. Managers may have to come up with creative approaches to alternatives and use personal judgement to determine which alternative is best.
Many decisions made under uncertainty do not produce the desired results, but managers face uncertainty every day. They find creative ways to cope with uncertainty in order to make more effective decisions.
Ambiguity is by far the most difficult decision situation. Ambiguity means that the goals to be achieved or the problem to be solved is unclear, alternatives are difficult to define, and information about outcomes is unavailable. Ambiguity is what students would feel if an instructor created student groups, told each group to complete a project but gave the groups no topic, direction, or guidelines whatsoever. Ambiguity has been called a wicked decision problem. Managers have a difficult time coming to grips with the issues. Wicked problems are associated with manager conflicts over goals and decision alternatives rapidly, changing circumstances, fuzzy information and unclear linkages among decision elements. Sometimes managers will come up with a solution only to realize that they hadn’t clearly defined the real problem to begin with. Information was fuzzy and fast changing and managers were in conflict over how to handle the problem. Neither side has dealt with this decision situation very effectively, and the reputations of both companies have suffered as a result. Fortunately, most decisions are not characterized by ambiguity. But when they are, managers must conjure up goals and develop reasonable scenarios for decision alternatives in the absence of information.