Decision Making under Uncertainty in Climate Change Organizations - Coursework Example

Decision Making Under Uncertainty in Climate Change Organizations Name Institution Table of Contents Executive Summary 2 Introduction 3 Uncertainty in Businesses Environment Change 4 Development uncertainty 5 Model uncertainty 5 Weight uncertainty 5 Decision Makers Attitudes and Risks in Uncertainty 6 Decision Making Criteria 7 Wald’s Maximin Criterion 7 Hurwicz’s Optimism – Pessimism Criterion 8 Maximax Criterion 8 Savage’s Minimax Regret 9 Conclusion 9 Recommendations 10 References 11 Executive Summary In decision making process especially under uncertainty conditions, the decision maker is faced with different changes and has to choose different alternatives. The alternatives have different outcomes; hence decision maker should be able to evaluate the outcomes of the alternatives. Environment decision maker faces uncertainty due to lack of information on natural systems and different views and perceptions of stakeholders. This paper has examined the possible uncertainty in different organizations and an environment change. The paper focused on different uncertainty and attitudes of decision makers towards uncertain conditions. There are different criteria that are employed by a decision maker in order to deal with uncertainty and risks in decision making. The paper has also examined the different approaches that environmentalist can use in order to come up with a decision that ill have better outcomes. This report recommends that communication and identification of uncertainty are crucial in the selection of approach to address uncertain conditions in environmental changes. Introduction This report aims at establishing the relationship between uncertainty and decision making process in an organization. This is because decision making is the most crucial task that top management individuals and is the most difficult. This is true especially when there are different stakeholders that are involved in the decision making process. This means that the decision making process is dependent on the knowledge managers have on the outcomes of their decisions (Booth & Choudhary, 2013). This report focuses on the different uncertainties that are faced by the organization and the need for decision making under the uncertainties. In addition, the report also examines the managerial decision making under risk conditions and the criteria in decisions in a sustainable environment. Uncertainty in Businesses Environment Change Environmental decision making is one of the difficult tasks for decision makers in a sustainable environment. This is due to lack of relevant information and varying demands of different stakeholders. Uncertainty is a crucial factor that influences the ways in which decision makers in business organizations makes their decisions. Uncertainty influences the ways in which decision maker in climate change relate and interact with one another and have a significant influence on the performance of a company product (Booth & Choudhary, 2013). As a result of its direct link to the activities of an organization, many researchers have focused on the influence of uncertainty and its importance on the decision making process in most organizations. Most organizations are tasked with the responsibility of identifying the different sources of uncertainty in order to quantify the output that results from the uncertainty. Depending on the organization, uncertainty may result from different sources (Polasky et al., 2011). For example, in science, uncertainty results from different sources, which influence clinical decisions. According to Politi and Ligare (2010), scientists are able to conceptualize uncertainty in different ways in order to establish the probability of future events. This means that there is the need to communicate uncertainty in order to develop a shared decision making. However, many organizations rarely make a decision concerning uncertainties in their organizations. In a business organization there are different types of uncertainties (Groves and Lempert, 2007). Development uncertainty This is the uncertainty that develops in an organization when there is the need for the company to predict the outcomes of future events. This means that the decisions that are made by the company managers under uncertain conditions are likely to depend on the prediction of the future. For example, an organization may have knowledge concerning a contaminated site that needs development. In order to make a budget for this site there are different assumptions that are made in regard to the level and extent of remediation and protocol to be followed (Moore et al., 2012). Model uncertainty This is an uncertainty that occurs in an organization when there is no clear information on an input model that is crucial in evaluating the performance of an organization. Weight uncertainty This is the uncertainty that is introduced to the business organization when different individuals have different criteria on the relative importance of a subject. This uncertainty is affected by human inputs such as knowledge, values of the organization stakeholders, decision makers, which include the managers of the business organizations and the prevailing political environment. Decision Makers Attitudes and Risks in Uncertainty Decision makers are faced with uncertain situation, which puts the business organization at risks. Risks mean differently to a different decision makers, such that different manager perceives risks in different ways. There are different risks involved in uncertain situations, which require decision makers to consider. This is because most uncertainty is likely to lead to either positive or negative results. Therefore, risky and uncertain conditions mean that the decision makers are not aware of the consequences. However, some managers are ready to make a decision depending on their attitudes towards the risks and uncertainty. Depending on the attitude of the decision maker about the situation, there are different decision models used by decision makers during uncertain conditions. These models are crucial in that they help the decision makers to analyze the different scenarios involved in the uncertain condition (Fitzgerald & Ayson, 2011). Under pure uncertainty, most decision makers are not aware of the outcomes and there is too much cost involved in obtaining such information. This means that decision making entirely depends on the personality of the decision makers. During uncertain situations, the degree of certainty varies among the decision makers depending on the level of information each manager or decision makers has. This means that decision makers who have enough information on the outcome are likely to make quick decisions as compared to those decision makers who have less information regarding the uncertain situation. This would mean that each decision maker will have a different recommendation on the same problem. For opportunist, a problem is seen as an opportunity while the pessimist sees a problem in the opportunity. This implies that a decision maker needs an expert’s judgment in order to make crucial decisions during uncertain situations. Pessimists believe that bad things always happen to them, hence the decisions they make are always wrong. Therefore, there are different approaches to the uncertainty that can be employed by the decision maker in environmental decision making process during uncertainty situations (Riabacke, 2006). Decision Making Criteria Under uncertain climatic and global changes, the decision maker is faced with different criteria to make decisions Wald’s Maximin Criterion This is a statistical criterion that was developed in order to make decisions during the conditions where the decision makers are ignorant of the outcomes. In this criterion, the maximum strategy was observed to be a better response that can be used against nature’s minimax strategy. This is a pessimistic approach to decision making since decision makers are not willing to take risks. In this approach, the decision makers choose the alternative that is likely to result in to least negative outcomes. Climatic changes are unpredictable and sometimes results into unfavorable results. This implies that decision makers who use this approach are afraid of making decisions that will have significant negative impact on the environment. Therefore, the Wald’s Maximin Criterion appeals to all decision makers that in the event of an unfavorable outcome, there are minimum payoffs from their decisions. This is because the Wald’s Maximin Criterion believes that there is a high probability that minimum payoffs is likely to occur, or the lowest payoffs are likely to lead to the most unfavorable outcome (Parzek & Rozman, 2009). Hurwicz’s Optimism – Pessimism Criterion This is a decision making criterion in which the decision makers are neither pessimists nor optimists. Decision maker in this approach selects a minimum payoff and the maximum payoff for a given environmental situation or climatic change. The target is to develop a middle scenario or middle ground between the pessimists and optimists rather than assuming total optimism or pessimism about a given uncertainty (Kreye et al., 2012). This means the environmental decision maker give the optimists a certain degree of percentage and the pessimist a certain percentage in order to strike a balance between the maximax and minimax strategies in uncertainty decision making process. This approach suggests that the minimum and the maximum should of all strategies used in decision making should be average by the use of a and 1-a. In this approach, a is used to represent the index of pessimism and alternative that is highly selected. In fact, a represent the different attitudes of the decision makers to take risks. A decision maker who is cautious will always set his or her a=1. This will reduce the criteria to the Maximin criterion. On the other hand, an adventurous decision maker will reduce the a=0 (Parzek & Rozman, 2009). Maximax Criterion This is an optimistic approach to the uncertain decision making process. In this approach, decision makers are able to examine the different alternatives and select the alternative that is likely to result in the best outcome. This decision making approach is widely used by the adventurous decision maker because it has high payoffs. It is convenient for the decision makers who are willing to gamble and are willing to take any losses that may result from their decisions (Parzek & Rozman, 2009). Savage’s Minimax Regret This is an approach that is used to examine the regret, cost of opportunity or loss during an uncertain situation. In this approach, the decision makers are forced to transform the payoff matrix into a regret matrix. This approach is intended to act as a caution to decision makers who would want to select alternatives that are likely to do well regardless of uncertain situations. Therefore, this criterion ensures those decision makers are able to avoid the worst regrettable consequences of environmental decisions (Parzek & Rozman, 2009). Conclusion Decision makers on climate change are faced with different challenges that arise from the impact of human activities. Most environmentalists are faced with making a decision about uncertain situation that result from global climatic changes. The use of multiple criteria decision analysis has been one of the strategies used to deal with uncertainty in challenging environmental change. There are different types of uncertainty that faces decision makers. These include development uncertainty, model uncertainty and with uncertainty. Due to changes in environmental condition, the decision makers are lacking information about the future. This makes it difficult for decision makers to implement decisions that are likely to have an unfavorable impact on the ecosystem. This means that the decision maker have different attitudes towards uncertainty and risk taking during uncertain situations. Depending on the attitudes of the decision makers, there are different criteria that can be followed by the decision maker in dealing with uncertainty in climate change. These criteria are based on the level of outcomes that will result from the decision making process. The decision making criteria include Savage’s Minimax Regret, Maximax Criterion, Hurwicz’s Optimism – Pessimism Criterion, and Wald’s Maximin Criterion. Therefore, there is a significant uncertainty that is involved in environmental decision making as a result of complexities of natural systems and lack of enough information. Recommendations From the above analysis and assessment of decision making criteria and uncertainty, environment decision maker are recommended to adopt certain criteria in order to implement environmental decisions. First of all, the decision maker should ensure that there are enough data regarding a situation in order to facilitate wise choice of decision making criteria. This data should be communicated to the stakeholder in order to induce shared responsibilities and avoid negative perceptions of a certain situation. This is done through the identification of the uncertainty in environmental decision making. This will facilitate the choice for better criteria in decision making. This will ensure that the decisions made are less likely to result in unfavorable consequences (Johnson & Johnson, 2009). Secondly, there is the need to critically analyze the different criteria in decision making and determine the probability and possibilities of uncertain events that affect climatic changes in the world (Nicholson and Possingham, 2007). This will ensure that the decision makers are able to minimize risks as well as select the best criterion that suits the uncertainty in order to ensure a sustainable environment. Therefore, the decision maker should select criteria that are able to balance the risks and benefits of the uncertainty in order to avoid total loss. References Booth, A., & Choudhary, R. (2013). Decision making under uncertainty in the retrofit analysis of the UK housing stock: Implications for the Green Deal. Energy and Buildings, 64, 292–308. Fitzgerald, M. & Ayson, S. (Eds.) (2011). Managing under uncertainty: a qualitative approach to decision making. Frenchs Forest, Sydney, NSW: Pearson. Groves, D.G. and Lempert, R.J. (2007). A new analytic method for finding policy-relevant scenarios. Global Environmental Change, 17, 73–85. Johnson, D & Johnson, F. (2009). Decision Making. In M. Fitzgerald & S. Ayson, (Eds.), Managing under uncertainty: a qualitative approach to decision making (pp. 498-551). 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