Decision making is an important process in an organization. It will affect the effectiveness of an organization. Decision making is almost universally defined as choosing between alternatives. In an organization, managers have formal authority to use organizational resources and to make decision. There are typically three levels of management which are top-level, middle-level, and first-level.
Top level management usually will make the strategic decision which will affect the long term direction of the business. Strategic decision is concerned with the future planning and taken accordence with organization vision and mission.Futhermore,it also deal with the organization growth and involve a change of major kind since an organization operates in ever changing environment.Top level management who adopt strategic decision are concerned to the various administrative functions, determine objectives of the business enterprise, taking important business decisions, deciding future course of action taking into considering economic policies, public opening and other social, national and international factors and giving guidelines to middle level managers. Top level management consists of board of director, president, vice president, and corporate head.
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Middle level management will made the tactical decision. These are medium term decision about how to implement strategy which set by the top level management. For example, how many staff needed to be hired? The middle level manager usually implements the instructions from top level management and passes it to the lower level management. They also have to compiling statistical reports for top level management and preparing records of their department, recommend revised and amended policies of their respective department. Middle level management also performs in motivating subordinates for higher productivity and awarding them for their great performance.
Lower level management made operational decision which is short term decisions about how to implement the tactics. In operational decision making, the decision makers have to consider about volume, latency, variability, managing risk, self service and personalized. Volume is the number of decisions of a specific type that decision makers made must be high. The volume can cause problems or exacerbate another decision problem, such as compliance and risk assessment. Besides that, latency means when you could foresee problem is coming but still couldn’t change how you are going to make decision in time. So you might have an operational problem.
For example how much money should spend on this month? They receive instruction from middle level management and implementing them in day-to-day affair of the business. They also assign duties to individual workers inspecting and supervising workers under command at work. They attend workers’ problem and help in solving by removing doubts in their mind and inspiring them for maximum productivity.
LOWER LEVEL MANAGEMENT
MIDDLE LEVEL MANAGEMENT
TOP LEVEL MANAGEMENT
B) Explanation how the management accountant must tailor the information provided for the various levels.
There are several steps need to be considered in the process of decision making. First of all, we need to identify those alternatives in a given type of decision. After that, acquire necessary data to evaluate those alternatives. Next, we must have the knowledge of the consequences in each alternative. The next step is choosing the best alternative that could achieve the targets and goals in organization and implement it. At a right time, the organization has to evaluate the results of the decision and compare with the standard or desired result.
In management accounting, the concept of decision making is a complex subject. The decisions classified as strategic decision, tactical decision and operational decision. A good decision is depends on the mission, vision and objectives of management. Strategic decision makers are under the Top management level. For examples, the strategic objectives that a management has to decide are quality of product, company’s product line, pricing strategy, profit objectives and willingness to take risk.
Strategic decisions are the highest level and wide in range, qualitative type of decisions reflects goals and objectives. While strategic decisions are non quantitative in nature. Strategic decisions are mostly based on subjective thinking of management concerning goals and objectives. Besides that, management accounting does not provide techniques for assisting in making strategic decision making.
Most of the organization included cash, accounts receivable, inventory and price as their decision items. The organizations have to maintain minimum level of cash without excessive risk. All of the stocks sell on credit. So the department needs to manage the receivable accounts well. Organization must maintain the safety stock. In strategic decision, has to decide to set the price lower than competitor’s and be volume dealer. Organization must try to get discount when purchase inventory. So that we could earn more profit.
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Once the strategic decision has been made, a particular management tool can be used and support in the tactical decision making. It tends to be medium range, medium significant, with moderate consequences. The primary goal is to ensure success in the tactical decision making. Those tactical decisions have the responsibility of making sure that all current operations remain sustainable. In addition, they have to make sure that new operations are designed and implemented to optimize the value. Making sure that the organization as a whole is successfully accomplished and make sure that sufficient synergy are unlocked from current operations to improve it.
There are five steps in the making of tactical decision. First step is the organization has to recognize and determine the problems. After that, they have to identify some alternatives as solution to the problems and eliminate alternatives too. When we are doing tactical decision making, need to predict the costs and benefits associated with each feasible alternative then have to deduct the costs and benefits which are not relevant to the decision. Next step is to compare the relevant costs and benefits for each alternative. At last, select the greatest benefits and also could support the strategic objectives in an organization.
Third decision making is the operational decision making which decided by the lower level management. It helps the organization to understand some fundamental cost-volume relationship relate to the operation in the company. In operational decision making, the decision makers have to consider about volume, latency, variability, managing risk, self service and personalized. Volume is the number of decisions of a specific type that decision makers made must be high. The volume can cause problems or exacerbate another decision problem, such as compliance and risk assessment. Besides that, latency means when you could foresee problem is coming but still couldn’t change how you are going to make decision in time. So you might have an operational problem.
There are some characteristics of operational decision. An operational decision must be precise, agile, consistent, fast and cost-effective to be effective. Precise which means good decision been made by using data quickly and effectively to take the right move. Employees must be knowledgeable with correct analyses.
Characteristics of Operational Decisions
To be effective, an operational decision must be precise, agile, consistent, fast, and cost-effective:
Precise-Good operational decisions use data quickly and effectively to take the right action, behaving like a knowledgeable employee with the right reports and analyses. They use this data to derive insight into the future, not just awareness of the past, and use this insight to act more appropriately. They use information about customers to target them through microsegmentation and extreme personalization. They use behavioral predictions for each transaction or customer to ensure that risk and return are balanced properly, and they use the information a customer (or supplier or partner) has provided (explicitly or implicitly) to improve the customer experience.
Agile-Operational decisions can be changed rapidly to reflect new opportunities, new organizations, and new threats; otherwise, they rapidly decline in value. No modern business system can stay static for long. The competitive, economic, and regulatory environment simply doesn’t allow it. When organizations automate their processes and transactions, they often find that the time to respond to change is affected largely by how quickly they can change their information systems. To minimize lost opportunity costs and maximize overall business agility, operational decisions must be easy to change quickly and effectively. The agility of these decisions-both the speed of identifying opportunities to improve and the readiness with which they can be changed-ensures that they remain aligned with an organization’s strategy, even as that strategy changes and evolves.
Consistent-Your operational decisions must be consistent across the increasing range of channels you operate through-the Web, mobile devices, interactive voice response systems, and kiosks, for example-and across time and geography. They allow you to act differently when you choose to-to offer a lower price online to encourage the use of a lower-cost channel, for example-but ensure that you don’t do so accidentally. These systems support third parties and agents who act on your behalf and the people who work for you directly. They enforce your organization’s laws, policies, and social preferences wherever it does business and make sure you avoid fines and legal issues. They deliver a consistently excellent experience for your associates.
Fast-You need to take the best action that time allows. The saying on the Internet is that your competition is three clicks away. Your associates are learning to be impatient and have short attention spans. Meanwhile, your supply and demand chains are becoming more real-time, and the systems that manage them must respond quickly as well as smartly. With fewer employees handling more customers, partners, and suppliers, you must eliminate the wait time for these associates. You must decide, and act, quickly.
Cost-effective-Above all, operational decisions must be cost-effective. Despite the massive efficiency gains and cost reductions of recent years, reducing costs continues to be essential. Good operational decisions help eliminate wasteful activities and costly reports. They reduce fraud and prevent fines. They help your people be more productive and spend their time where it really matters. They make sure you do as many things right the first time as possible and avoid expensive “do-overs.” They reduce the friction that slows processes and increases costs.
Operational decisions are what make your business strategy real and ensure that your organization runs effectively, right down to the front-lines interacting with your associates. To ensure that operational decisions are effective, you need to manage operational decision making. The change in mind-set required is akin to the changing view of data over the past few years. Data is no longer just something needed to run systems; it has become visible to many and is managed as a resource for the whole organization-a corporate asset. Managing operational decision making as a corporate asset means treating it as strategic, managing it explicitly, making it visible and reusable across the organization, and improving it constantly.
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