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Decision-Making Under Uncertainty

Nowadays, teams and managers are quite aware of the challenge that comes with making the right decisions quickly. No matter the circumstances, making the ideal decision even under the best conditions can present difficulty. That being said, it is safe to say that the most compelling decisions are the ones we have to make under uncertainty. COVID-19 being the most recent factor of uncertainty in this regard, managers, leaders, and teams have become increasingly dependent on external development and support in making decisions. Not only does uncertainty lead to a massive amount of stress in a work environment, but the actual knowledge that unwanted outcomes lie ahead may also bring fear, worry, and thus, lack of motivation for many employees.
We all assume that as long as we collect enough data, understand the necessary formula sufficiently, and assess past mistakes thoroughly, the right answer will come into place by default. However, in the real world, this is rarely the case. It is quite important to acknowledge that regardless of the reliable data at hand, every situation may present a certain level of uncertainty. Once you accept this fact, it becomes easier to see past the vague clouds that hover around your decision-making process and land on the right choice. So how are we supposed to make decisions under fragile circumstances? What are the golden rules of decision-making under uncertainty? What are the negative effects of uncertainty in decision-making, and how can we overcome them? Here is everything you need to know about decision-making under conditions of uncertainty and vagueness.

The Definition of Decision-Making Under Uncertainty and Risk

By now, we know that decision-making is the process of making choices by identifying the problem, gathering relative information, assessing alternatives, and landing on a solution. We also know that using a step-by-step guide in the decision-making process helps make more thoughtful and deliberate decisions on a consistent level. This process organizes the information you have gathered, helps you define alternatives, and view your choices more clearly. During this process, decision-makers often stumble upon three different conditions: certainty, uncertainty, and risk.
Although Decision-making under uncertainty and risk goes hand-in-hand at times, it is best to perceive them as two separate conditions that influence our decision-making process. Making decisions under uncertainty entails having no knowledge about the likelihood of occurrence of an event, therefore, your decisional behavior is solely based on your attitude towards the unknown. Decision-making under risk, however, is based on “some” amount of knowledge of the situations where you can assign various probabilities to the event and are aware of the probability estimates. In both cases, though, you can try and acquire more information to reach a certain level of comfortable certainty.

What Causes Uncertainty In Decision-Making Processes?

While the reasons for uncertain circumstances in a workplace may vary, causes of uncertainty are usually defined by the following conditions:

  1. Lack of knowledge or information
  2. Too much knowledge or information
  3. Mistakes made during measurement and analysis
  4. Conflicting information bundles
  5. Subjective opinions that derail the objective interpretation of the available information

Making Decisions Under Uncertainty vs. Under Risk

It is important to emphasize the fact that even the simplest decision-making processes may carry some level of uncertainty. Even when you are choosing a cup of coffee from the coffee shop down the street from your office, you are still bound by the possibility that the coffee will be too hot, too cold, or will simply not live up to your standard expectations. While drinking lukewarm coffee one day of the week will not affect (at least we hope so!) your and your team’s efficiency, a decision concerning your business may bare some unexpected results when made under uncertainty. This is why decision making in uncertain times is quite critical for both managers, team leaders, and other stakeholders that are responsible for the decision-making process.
During the process of decision-making under deep uncertainty, we are not entailed to any information about the results. Conditions of uncertainty arise when the future and outcomes are unpredictable; therefore, everything is in a state of elusiveness. In such cases, you are hardly aware of the possible alternatives, the risks and opportunities that each alternative carries, the consequences that come with each, as well as the extent of your success or failure. Risk analysis and decision trees are some of the techniques that can help improve the quality of decision-making under such circumstances.
When making decisions under risk, however, you have some and/or incomplete information on the matter, therefore are able to associate the possible opportunities and threats of each alternative. This helps you assess the likelihood and results of each option and roughly measure your ratio of success. You have some knowledge regarding the occurrence of each outcome when making decisions under risk, therefore can factor these alternatives into your decision-making process. This is why most studies define making decisions under risk as a sort of substitute for uncertainty.

How to Improve Decision-Making in Uncertain Times?

It is important to realize that the purpose of analyzing uncertainty does not necessarily have to be to reduce it. Uncertainty can play a significant role in decision-making; therefore, it becomes more effective to better understand the impact of uncertainty on your decision-making process. While there are numerous methods that can be used when analyzing uncertainty, the most crucial point is to follow the general guidelines for decision-making under uncertainty examples and try to implement these rules in your everyday routine.

  • Document the various uncertainties that may come with a decision: The deeper you explore them, the more uncertainties you will find, which will then help you identify the few ones that are actually of significant importance.
  • Define and describe the uncertainties as clearly as possible: Try to materialize the abstract uncertainties that lie ahead of you by using methods such as the sensitivity analysis or the Monte Carlo simulation method.
  • Assess the possible consequences of alternative decisions: The uncertainties can actually lose their power if evaluating the consequences of alternative choices does not change the desired results.
  • Provide as much information and knowledge on the context as you can in order to comprehend the relevance of the said uncertainties.
  • File reports on the level of agreement between those assessing the uncertainties and decisions.
  • Limit your options: Isn’t it much easier to choose between two options rather than ten? The fewer options you have, the less overwhelming the uncertain situation will appear. Make sure to eliminate the least realistic ideas from your decision-making process first.
  • Determine how important this decision is: Is this decision of uttermost importance for your team/company/business? How much time are you allowing yourself to spend on it? Will it actually be worth the time you spend? You can ensure that the scarce resource of time is used as practically as possible by determining how much time is being spent on making a decision.
  • Get advice from your team mates: You don’t need to make decisions alone! Good teams discuss issues together and decide collectively. Use the wisdom of your team and get their help to take the next step.
  • Avoid making decisions based on your emotions: It is crucial that emotions are recognized and – when needed – put aside during the decision-making process – especially when making decisions under uncertainty. Managers often fall into the trap of making decisions based solely on emotions, therefore displaying impulsive reactions and facing the outcomes of their bad choices. It is always a wise idea to step back and look at the situation objectively when you feel that you are too emotionally involved in the matter.

To utilize your teams’ decision-making process even in the most uncertain and vague times, give the Huudle app a chance!