Improving strategic decision making

by The Times 100 on Thursday 16th April, 2009

When decisions are made in business there are a number of factors that can be taken into account – for example the objectives of the organisation, the perceived level of risk and the likely effects of the decision on the firm's reputation. Financial considerations will also play a key part in business decisions. Unlike financial accountants who use recorded data to prepare accounting statements, management accountants evaluate and interpret financial data to advise senior managers when decisions are being made. CIMA is the leading professional body for management accountants. Its members have financial training but often have a range of management experience too. These combined mean they are well suited to provide strategic advice, manage risk and contribute to the decision making process at all stages.

Last week saw the first budget of the coalition government. For some businesses the measures announced will be positive. Corporation Tax, the tax paid as a percentage of profits, will be reduced by 1% per year over the next three years and the small companies' tax rate will fall to 20%. However other changes will need to be considered carefully by businesses. For example, should retailers pass on the 2.5% increase in VAT on to the consumer or absorb it themselves? Will the £11bn savings in welfare payments over the next five years affect demand for goods and services? How will the freeze in public sector pay impact on sales or employment in the private sector? (BBC 22nd June 2010)

Going forward, businesses will have to make decisions in response to George Osborne's budget last Tuesday, drawing on the expertise of their management accountants.

Questions

  1. Explain the difference between strategic and operational decisions.
  2. List the factors you would take into consideration when deciding whether to continue with your education or get a job. Determine whether each of these is a financial decision or a qualitative decision.
  3. To what extent are financial considerations more important than qualitative factors when making decisions in business?

Answers

  1. Explain the difference between strategic and operational decisions. Strategic decisions have long term implications for an entire organisation. They are usually made by senior managers. An example could be deciding to relocate the business to another country. Operational decisions relate to the short term, day-to-day operations of a business and are generally made by junior managers. An example could be deciding on the staffing rota for the following day.
  2. List the factors you would take into consideration when deciding whether to continue with your education or get a job. Determine whether each of these is a financial decision or a qualitative decision.
  3. To what extent are financial considerations more important than qualitative factors when making decisions in business? On one hand financial considerations are important because: • Poor financial decisions can have huge impacts on business • Financial data is usually easier to measure and compare than qualitative factors • Success of a firm is often measured on its financial performance. However, qualitative factors are important because: • The organisation's objectives should be at the heart of business decisions • Managers/directors will be involved in the decision making so their preferences are likely to be taken into account • Not taking into account qualitative factors, such as the affect on the reputation of the firm, could have future financial implications. It may depend on whether the decisions are strategic or operational and whether the decisions are made as part of forward planning or during a crisis situation.

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