Operational decision

Operational decision
See also
Planning and control Types of control system Resource plan Strategic decision Operational control Organization of managerial work Importance of strategic management Tactical management Business capabilities

Operational decision is the one taken by managers on a daily basis, being a translation of requirements set at the strategic level (Aurum, A., 2005, p. 8). Operational decision is one of three main types of decisions made by the management. The remaining two include strategic decisions and tactical ones (Aurum, A., 2005, p. 8). Operational decision-making refers to production process, its planning, technical preparation as well as managing relations with suppliers (Hald, K., 2012, p. 1075).

All business decisions are inextricably linked to information. Information is at the core of any decision-making process. Therefore, if the outcomes of the decisions taken turn out to be negative to an organization, it is highly likely that the information system and its management are inefficient and should be reviewed. The information used to take important business decisions should be relevant and accurate. Modern companies have recognised this need, creating special departments which are responsible solely for information management.

According to Aurum (2005, p. 4), single components of operational decisions can be "unstructured, consequential and preference-based". In addition, he lists two types of methods that can be applied while making operational decisions. These types have been differentiated based on the nature of the problem (Aurum, A., 2005, p. 4):

• "structured problems", which are best addressed with "quantitative" methods
• "unstructured problems", in which case qualitative methods should be employed.

Operational decisions - constraints

One of the greatest challenges connected with operational decision-making include prioritization and selection (Aurum, A., 2005, p. 3). As a result of this, managers need to prepare an action plan beforehand in order to avoid delays, misunderstanding and ultimately meet the expected targets.

Another problem connected with operational decision-making is that managers need to match multiple expectations from the owners of the company and equity holders, whose interests are often conflicting (Xu, X., 2005, p. 1). In addition, operational decisions depend on certain financial limitations, e.g. the availability of not only internal capital, but also the external one (Xu, X., 2005, p. 2). This is why it is important to link the operational and financial sphere of the company's activity (Babich, V., 2004, p. 1). Babich stresses the correlation between these two areas by pointing that "the operational decisions are production and capacity expansion and the financial decisions are the source of capital and the amounts of bank loans" (2004, p. 1).

Operational decisions are oriented both at the organisation and its environment (Bucolo, S., 2012, p. 19). Modern companies make use of advanced ERP systems that facilitate the control of different variables and costs in order to optimize the performance of the enterprise (Hald, K., 2012, p. 1075). Therefore, operational decisions follow operational controlling activities and are linked to technology management.

Examples of Operational decision

• Setting daily production goals: An operational decision taken by managers is to set daily production goals for the workers in order to ensure that the production process is running smoothly and efficiently.
• Determining the cost of materials: Another operational decision is to determine the cost of the materials used in the production process, in order to ensure that the company is getting the best deal possible.
• Managing suppliers: Operational decisions include managing relationships with suppliers in order to ensure that the materials used in the production process are of the highest quality and at the best price.
• Scheduling: Operational decisions include scheduling workers in order to maximize productivity and ensure that deadlines are met.
• Hiring and Training: Operational decisions also include hiring and training new employees in order to ensure that the company has a skilled and experienced workforce.

Advantages of Operational decision

Operational decision-making has several advantages:

• It helps to bring strategic and tactical decisions to life, ensuring that the organization’s plans are implemented effectively. It provides a systematic approach to problem-solving, allowing the organization to respond quickly to unforeseen changes and take corrective action.
• Operational decisions often involve the use of data and analytics to make informed decisions. This helps to ensure that decisions are based on sound evidence, rather than guesswork.
• Operational decisions can also help to reduce costs and improve efficiency. By making small changes to the production process and workflow, organizations can often make substantial improvements to their bottom line.
• Finally, operational decisions can help to improve customer satisfaction by ensuring that products are delivered on time and to the required standard. This helps to build trust and loyalty with customers, which is essential in any competitive market.

Limitations of Operational decision

Operational decision-making has some limitations that must be taken into account when making decisions. These include:

• Limited information – Operational decisions are typically made with limited information available, making it difficult to fully assess the risks and benefits of a particular decision.
• Time constraints – The operational decision-making process is often subject to time constraints, which may prevent a thorough analysis of the situation.
• Lack of experience – Operational decision-makers may lack the experience and expertise to properly evaluate the situation and make a sound decision.
• Lack of resources – Operational decision-makers may not have access to the resources needed to make an informed decision.
• Lack of strategic vision – Operational decision-makers may lack the necessary strategic vision to make decisions that are in line with the organisation's long-term goals.

Other approaches related to Operational decision

To further elaborate on Operational decision, there are a few other approaches that are related to it. These approaches include:

• Data-driven decision-making – this approach implies that decisions are made on the basis of data and facts, rather than subjective opinions. This approach is especially important when complex decisions need to be made.
• Process-oriented decision-making – this approach involves the systematic analysis of the process that leads to a decision, in order to facilitate quicker and more effective decision-making.
• Quality-driven decision-making – this approach puts quality at the forefront of decision-making, ensuring that decisions are made in a way that will result in the highest levels of quality.

In summary, operational decision is a type of decision made by managers on a daily basis and is related to several other approaches such as data-driven, process-oriented, and quality-driven decision-making.

References

• Aurum, A., (2005), Aligning Requirements with Business Objectives: A Framework for Requirements Engineering Decisions, "Proceedings Requirements Engineering Decision Support Workshop"
• Babich, V., (2004), Pre-IPO Operational and Financial Decisions, "Management Science", no. 50
• Buvolo, S., (2012), Gaps in organizational leadership: linking strategic and operational activities through design-led propositions., "Design Management Journal", no. 7
• Hald, K., (2012), Enterprise resource planning, operations and management: Enabling and constraining ERP and the role of the production and operations manager, "International Journal of Operations & Production Management", no. 39
• Xu, X., (2005), Operational Decisions, Capital Structure, and Managerial Compensation: A News Vendor Perspective, ChicagoGBS, Chicago

Author: Małgorzata Goryl