Page 3: Levels of decision making
Decisions are made at different levels in an organisation's hierarchy:
- Strategic decisions are long-term in their impact. They affect and shape the direction of the whole business. They are generally made by senior managers. The managers of the bakery need to take a strategic decision about whether to remain in the cafe business. Long-term forecasts of business turnover set against likely market conditions will help to determine if it should close the cafe business.
- Tactical decisions help to implement the strategy. They are usually made by middle management. For the cafe, a tactical decision would be whether to open earlier in the morning or on Saturday to attract new customers. Managers would want research data on likely customer numbers to help them decide if opening hours should be extended.
- Operational decisions relate to the day-to-day running of the business. They are mainly routine and may be taken by middle or junior managers. For example, a simple operational decision for the cafe would be whether to order more coffee for next week. Stock and sales data will show when it needs to order more supplies.
As these examples show, decisions at all levels need data. A business creates a trail of data. This includes data on sales, employee costs and payments. In a large company, such as Tesco, millions of data items are created every day against thousands of cost and sales headings. This data can provide a picture of trends, which the business can use in its forward planning.
Financial accountants use recorded data to prepare the accounting statements for a business. Every company (large and small) has a duty to keep accounting records and must prepare annual accounts that report on the performance and activities of the company during the year. Financial accountants must ensure these accounts are accurate and prepared in accordance with accounting rules and conventions.
Management accountants need to understand these formal accounting documents. However, because their role involves the analysis and application of data, they must also be familiar with business strategy and risk management. Management accountants use internal data (like a balance sheet) and external data (such as market information) to assess effects on the business and drive better informed decision making.