Operational decision
| Operational decision |
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| See also |
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.
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
