A business continually makes decisions at all levels. Think of a retailer such as Next. To keep the brand’s high profile position, its managers have to make many decisions. Each major strategic decision leads to tactical decisions, which break down into operational decisions.
Decisions are broadly taken at three levels:
Strategic decisions are big choices of identity and direction. Who are we? Where are we heading? These decisions are often complex and multi-dimensional. They may involve large sums of money, have a long-term impact and are usually taken by senior management.
Tactical decisions are about how to manage performance to achieve the strategy. What resources are needed? What is the timescale? These decisions are distinctive but within clearer boundaries. They may involve significant resources, have medium-term implications and may be taken by senior or middle managers.
Operational decisions are more routine and follow known rules. How many? To what specification? These decisions involve more limited resources, have a shorter-term application and can be taken by middle or first line managers.
Decisions in action
Imagine Next is planning to expand its product range. Its decisions would involve all three levels. All decisions depend on information. The key is to get the right information to the right people at the right time. For example, management accountants at Shell, the global oil and gas company, have been improving the way the company deals with the strategic and operational data about its global energy projects to improve strategic planning.
The company brought together data from 1200 projects and opportunities across 40 countries into a single system. Bringing the information together was a complex task due to the size of the company’s operations. However, the system has helped to define strategies and provide greater insight and detail to the Executive Committee and Board. This has given greater clarity on the business’ current and potential performance and highlighted where the company should allocate resources. To date, the system has helped Shell to increase net present value by over 15%.
Chartered Institute of Management Accountants | Decision making techniques