Question

Define the terms ‘risk’, ‘certainty’ and ‘uncertainty’ as they relate to

managerial decision-making. Using examples from any published news

sources, describe what types of situations would count as risk, certainty and

uncertainty from a managerial perspective. 250 words or less

Answer 1

Risk – From a managerial perspective, the manager takes the decision when the appropriate information is unavailable or when they don’t have sufficient evidence for the information- risk arises. Under the condition of risk, the manager’s decision is made based on incomplete information on what alternatives are available to them. For example, the insurance companies do not have adequate or accurate information about the insurer’s health. Assuming that the insurer will not die in the next 25 years, the insurance company provides the coverage plan for the individual.

Certainty- From a managerial perspective, the manager knows for sure the alternative outcomes. The manager also knows the conditions under each alternative and also the outcome for each alternative. In other words, the manager’s decision making is based on accurate and measurable data. For example: Walmart is able to plan its product line based on its strategy ‘Every Day Low Pricing’.

Uncertainty- The managers make decisions based on uncertain conditions. Uncertainty exists when the future outcome is unknown. In other words, the manager is not aware of the alternatives available and the risks associated with each alternative. In such cases, the decisions are highly dependent on personal judgment and the experience of the managers. For example, - Apple Inc. introduced new products under condition of uncertainty in the market. However, Apple’s I-Phone was a disruptive innovation for the whole industry. The company did not have complete and accurate information about the acceptability of the product however it was highly successful and became a disruptive innovation for the whole industry.

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