This is when you decide on a course of action. Go left or right to avoid a hazard? What about the green light? Is someone currently tailgating? If you are approaching a yellow light for instance, and you sense that a tailgater is not slowing down, what are your outs? An "out" would be any options to avoid a collision in the space around your car. If there are two lanes available for instance, your out would be to quickly change lanes if you have a clearing in either direction.
This decision-making process incorporates all the predictions and identifications you made during the previous two steps.
Therefore, the answer is Choice C