This document provides an overview of a course on managing decision under uncertainties taught by Dr. Elijah Ezendu. The learning objectives are to recognize the importance of managing decisions, identify the effects of risks and uncertainties on decisions, identify sources and levels of uncertainties, and manipulate uncertainties effectively while managing decisions. It defines certainty, risk, and uncertainty and differentiates between risk and uncertainty. It discusses various sources of uncertainty including demand structure, supply structure, competitors, internal forces, and time. It also covers levels of uncertainty, biases that hinder effective decision-making, handling uncertainties, limitations of tools like net present value analysis and real options, and the concept of decision profiling to examine past choices.

1. Managing Decision
Under Uncertainties
Dr. Elijah Ezendu
FIMC, FIIAN, FBDI, FSSM, FAAFM, FCCM, MIMIS, MITD, ACIArb, ACIPM,
PhD, DocM, MBA, CWM, CBDA, CMA, MPM, PME, CSOL, CCIP, CMC, CMgr

2. Learning Objectives
At the end of the course, participants should be
able to do the following:
Recognize the importance of managing
decision
Identify effects of risks and uncertainties on
decisions
Identify the sources and levels of uncertainties
Manipulate uncertainties effectively while
managing decision
Conduct decision profiling

3. “Decisions under uncertainty are high-stakes
gambling where factors such as human life,
health, economic prosperity, or the
environment are concerned.”
- Norman Shultz

4. “The complexity of most issues makes it impossible
to completely predict what will happen if a
particular decision is made or if a dispute is
resolved in a particular way. This is very clear in
scientific and technical disputes (on the severity
or implications of greenhouse warming, for
example), but it occurs in non-scientific disputes
as well. (For example, how many people will lose
their jobs if the government adopts a new
economic policy).”
Source: Conflict Research Consortium

5. “Every firm deals with uncertainty in one
way or another. Uncertainty is not often
addressed very well in competitive
strategy formulation.”
- Michael Porter

6. Event: Occurrence of something
Outcome: Result or consequence of event
Probability: The likelihood of an outcome
Value at Risk: Amount of loss if a negative
event happens

7. Certainty, Risk & Uncertainty
Certainty: This is a situation wherein the
outcome that will occur is known.
Risk: This is a situation wherein all possible
outcomes and the probability of occurrence
are known , even as one does not know which
outcome shall surely occur.
Uncertainty: This is a situation wherein the
possible outcomes or probability of the
outcomes is unknown, or both the possible
outcomes and probability of outcomes are
unknown.

8. Positioning Uncertainty & Risk
Uncertainty
Risk and
Uncertainty Risk
Probabilities
[and Outcomes]
Unknown
Some Knowledge
Of Probabilities
[and Outcomes]
Probabilities
[and Outcomes]
Known
Source: Casavant, Kenneth, Infanger and Bridges

9. Differentiating Risk from Uncertainty
Risk is a state which probabilistic distributions
can be assigned and expected values can be
determined.
In the case of uncertainty, probabilistic
distribution can’t be assigned and expected
values can’t be determined

10. Exercise
1. Mention 5 examples of Certainty
2. Mention 5 examples of Risk
3. Mention 5 examples of Uncertainty

11. Impact of Risk and Uncertainty
on Choices During Decision Making
• Lower risk and uncertainty are preferable
situations: If the management of a firm fail to
think about risk and uncertainty, it may end in
quandary.
• As risk and uncertainty increases, some strategic
choices become more valuable than others: At
high levels of risk and uncertainty, the best
strategic choices are those that boost an
organisation’s flexibility and sustain open
options.

12. “Uncertainty confounds the planning process
by invalidating the rules of the game under
which the industry has operated, without
revealing obvious new rules.”
- Dennis Kennedy

13. Sources of Uncertainty
Source: Elijah Ezendu, Decision-Making

14. Demand Structure
• Customer Preferences
• Market Size
• Price Responsiveness
• Segmentation
Externalities
• Industry Structure
• Government Regulation
• Influence of Non Governmental Organisations
• Social Norms

15. Supply Structure
• New Products
• New Processes
• New Technology
Competitors
• Nature of Competitors
• Strategies of Competitors
• Behaviours of Competitors

16. Internal Forces
• Alignment of Ownership
• Behaviour of Management
• Behaviour of Employees
Time
• The Rapidity of a Phenomenon

17. “Whether it is uncertainty, risk, or somewhere in-
between there is one strategy that always
improves the manager’s ability to make sound
management decisions and that is information.
The more information a manager has on the
potential uncertainties and risks that they face,
then the more they can establish probabilities
of likely outcomes, evaluate the impact on the
business, and evaluate risk management
strategies accordingly.”
- Kevin Bernhardt

18. Levels of Uncertainty

19. Clear Trends
These are factors that are plain and can be
investigated without problems, and their
details are knowable, while the activities can
be predictable on probing deeper therein.
For example assumptions about upward trend in
the society, market and economic bloc.

20. Unknowns That Are Known
This second level of uncertainty is characterized
by factors which when subjected to proper
analysis , their probability of outcome can be
known.
For example demand trends and consumer
preferences.

21. Residual Uncertainty
This is the topmost level of uncertainty and its
distinctive features are complexity and futility in
every attempt of people to conduct analysis for
predicting occurrence. Therefore, residual
uncertainty normally cause fear, stress and
discomfort to decision makers. Nevertheless,
movement from one position of time to another, may
be able to downgrade it to a lower level of
uncertainty.
For example the effect of consumer choice on the
future of financial services

22. Exercise
As a forward looking professional, conduct a
comprehensive profile of your career and
pinpoint your goals. Thereafter, identify your
career certainties, career risks and career
uncertainties.

23. Bernoulli’s Model of Different Risk Perspectives
Risk-Averse
Risk
Neutral
Risk-Seeking
Utility
Money
Source: Begg, Bratvold and Campbell, Decision-Making Under Uncertainty

24. i. Risk-Averse: This involves preference for a certain outcome
instead of a gamble with expected value of wealth. When a
Risk-Averse decision-maker acts, a risky opportunity would
be exchanged for one that has a definite outcome. This is
characterized by diminishing marginal utility of wealth.
ii. Risk Neutral: This is indifferent between the certain
outcome and gamble. The Risk Neutral attitude to decision-
making focuses on expected value.
iii. Risk-Seeking: This involves preference for the gamble
instead of the certain outcome. Risk-Seeking decision-
maker would want to be paid an amount higher than the
expected value, so as to exchange the risky decision for the
certain one. This is characterized by increasing marginal
utility of wealth.
Risk Perspectives in Decision Making

25. “Most decisions to do something positive…. Can
only be taken as a result of animal spirits- of a
spontaneous urge to action rather than
inaction, and not as the outcome of a
weighted average of quantitative benefits
multiplied by quantitative probabilities.”
- John Maynard Keynes

26. Common Biases Hindering Effective
Management of Decisions
• Availability Bias
• Undue Optimism and Overconfidence
• Seeing Object of Belief
• Anchoring on Idea

27. Handling Uncertainties
Exogenous Uncertainty
• Identify technological uncertainties and ascertain market
potential
• Limit the firm’s exposure
• Uphold flexibility
Endogenous Uncertainty
• Identify optimal entry time with reference to competitor entry
• Build internal teams and alliance relationships.

28. Limitations of Using NPV Analysis
Under Uncertainties
1. Information pertaining to cash flow may not be
available.
2. Assumes uncertainty and risk remains constant
3. It does not track the value of future strategies that
are enabled by current strategy

29. The Place of Scenario Analysis in
Managing Decision Under Uncertainties
• It gives room for alternative values of
strategies based on alternative contributory
factors
• It does not handle the second and third
limitation of NPV Analysis

30. Limitations of Real Options in
Managing Decision Under Uncertainty
1. The problem of balancing flexibility with
commitment
2. Variation in responsiveness of
products/opportunities to capital market
assumptions

31. Flexibility Versus Commitment
1. When commitment become successful, it
gives superior performance
2. Flexibility to go for additional options could
be connected to previous commitment
3. Even if the value of flexibility is increased by
uncertainty, obviously it’s not right to be
totally flexible.

32. Decision Profiling
This is done by identifying and examining the
past choices and their basis in line with
standards , so as to ensure compliance of
decision thrust to stated objectives.

33. Case Study
The Chief Executive Officer of Kestel Bank
invited you as a consultant to conduct
management decision profiling, so as to
ascertain the veracity of their decision thrust
in improving competitiveness. Explain how
you would conduct it vis-à-vis the internal and
external realities of the bank.

34. Dr Elijah Ezendu is Award-Winning Business Expert & Certified Management Consultant with expertise
in Interim Management, Strategy, Competitive Intelligence, Transformation, Restructuring, Turnaround
Management, Business Development, Marketing, Project & Cost Management, Leadership, HR, CSR, e-
Business & Software Architecture. He had functioned as Founder, Initiative for Sustainable Business
Equity; Chairman of Board, Charisma Broadcast Film Academy; Group Chief Operating Officer, Idova
Group; CEO, Rubiini (UAE); Special Advisor, RTEAN; Director, MMNA Investments; Chair, Int’l Board of
GCC Business Council (UAE); Senior Partner, Shevach Consulting; Chairman (Certification & Training),
Coordinator (Board of Fellows), Lead Assessor & Governing Council Member, Institute of Management
Consultants, Nigeria; Lead Resource, Centre for Competitive Intelligence Development; Lead
Consultant/ Partner, JK Michaels; Turnaround Project Director, Consolidated Business Holdings Limited;
Technical Director, Gestalt; Chief Operating Officer, Rohan Group; Executive Director (Various Roles),
Fortuna, Gambia & Malta; Chief Advisor/ Partner, D & E; Vice Chairman of Board, Refined Shipping;
Director of Programmes & Governing Council Member, Institute of Business Development, Nigeria;
Member of TDD Committee, International Association of Software Architects, USA; Member of Strategic
Planning and Implementation Committee, Chartered Institute of Personnel Management of Nigeria;
Country Manager (Nigeria) & Adjunct Faculty (MBA Programme), Regent Business School, South Africa;
Adjunct Faculty (MBA Programme), Ladoke Akintola University of Technology; Editor-in-Chief, Cost
Management Journal; Council Member, Institute of Internal Auditors of Nigeria; Member, Board of
Directors (Several Organizations). He holds Doctoral Degree in Management, Master of Business
Administration and Fellow of Professional Institutes in North America, UK & Nigeria. He is Innovator of
Corporate Investment Structure Based on Financials and Intangibles, for valuation highlighting
intangible contributions of host communities and ecological environment: A model celebrated globally
as remedy for unmitigated depreciation of ecological capital and developmental deprivation of host
communities. He had served as Examiner to Professional Institutes and Universities. He had been a
member of Guild of Soundtrack Producers of Nigeria. He's an author and extensively featured speaker.

35. Thank You