Summary
This article includes a basic clarification of the types of decisions that an executive makes in an organization, which will be called Management Decisions. In addition, concepts and the way in which these decisions are linked to the activities of the administrative process (Plan, Organize, Direct and Control) widely known in the field of administration and the main administrative support tools will be clarified.
Management decisions
The information needs required within the organization vary according to the level within the organizational structure. The decisions of the executives or directors are less structured where there are no repetitive situations and, therefore, unique recipes for solutions cannot be applied; on the contrary, evaluation criteria and points of view must be established for each situation where much of the data must come from external and subjective sources in environments with risks and uncertainty.Because it is impossible to determine and control all the variables or factors that affect a situation, it is sought through models to represent reality for its analysis, it is expected that the decisions made are satisfactory and not optimal decisions in the context of rationality of who should make decisions. The decisions that executives make will be deployed at all levels of the organization translated into more specific and concrete objectives and actions at each level down. The information required in these decisions represent the starting point to carry out actions that will ultimately affect the performance of the organization.The decisions that executives make will be deployed at all levels of the organization translated into more specific and concrete objectives and actions at each level down. The information required in these decisions represent the starting point to carry out actions that will ultimately affect the performance of the organization.The decisions that executives make will be deployed at all levels of the organization translated into more specific and concrete objectives and actions at each level down. The information required in these decisions represent the starting point to carry out actions that will ultimately affect the performance of the organization.
The general objective of the performance of any organization is to Create Economic Value, and is therefore the ultimate global objective that must be achieved by any managerial decision. Bad decisions destroy value and is most noticeable in small organizations that have fewer accumulated capacities to withstand a loss in economic value. Good business that creates value is the result of good decisions and the efficient and effective use of resources and capabilities.
Due to the fast-paced globalized environment with more demanding clients and greater competencies, good decisions cannot guarantee good results in the future, but they are a possible protection against bad results.
As intermediate objectives to create value are to achieve sustainable competences over time and in the functional aspect to promote essential competences in internal activities.
This discards the traditional idea of evaluating performance in purely financial terms that is of greatest interest to owners, profitability is a retrospective result that communicates what has been done in the past. New decisions must be the result of a process that must consider a perspective towards the future and the environment, taking into account not only the interests of the owners, but also considering the present interests of the clients, learning within the organization and internal processes. customer oriented (Norton & Klapan). In this way, the factors that affect the financial result will be addressed.
The decisions that an executive makes in the different units of an organization will be called Management Decisions.
Management decisions can be classified, from the management point of view, into two types:
- Planning Decisions Management Control Decisions
This is due to the fact that a director or executive mainly makes decisions regarding planning (What is to be done?) And a little less control over the administrative process (Is the plan being done?). Planning and control functions are closely linked today due to the cyclical nature of the process, dynamic environment and adaptive of the organization. Management Control Decisions are somewhere in between Planning Decisions and Operations Control Decisions, since the latter must ensure the efficiency and effectiveness of individual tasks according to the implementation of the strategy. From now on, management control decisions will be called Control Decisions.as a way to simplify its name, since operations control decisions are oriented to transactions that require very little participation from directors because they are mostly systematic, with exact and specific data where it is possible to automate and use scientific tools (Example: the numerical control for optimization).
Due to the importance of the strategy and the commitments emanating from it throughout the organization, planning decisions are mainly circumscribed in the process called Strategic Planning, which is a systematic process where objectives are defined and strategies are formulated to achieve it. (What to do?); Long-term action programs are specified with the corresponding allocation of resources (How to implement them?). Planning decisions will be called Strategic Decisions when they are determined in the Strategy Formulation process where the objectives for the organization are defined and the strategies to achieve them, these have the property of being mainlyproactive decisions, tending to outline the future or establish a desired situation; On the other hand, the Control Decisions are rather reactive and tend to anticipate a future problem indicated by a reference indicator or, in the worst case, take corrective actions in the event of a problem that has already occurred. In control decisions there is a detector (Measure) that stimulates an evaluator (Executive) to carry out an action. Control Decisions will also be called Strategic Control to the extent that there is a strategy linked to it.
However, Strategic Decisions can also be reactive, especially when they arise from unforeseen changes in the environment. When this happens and a plan is made to face the changes, it is called Opportunistic Planning. The normal case when it is scheduled and carried out with a certain periodicity is called Formal Planning. Both are necessary to maintain the viability of the organization since opportunistic planning appears when problems have not been anticipated by formal planning.
The decisions made in both areas derive different results and actions. Strategic decisions are not systematic, more in the long term, with more inaccurate data from the future, they are represented in a Strategic Plan that describes how the strategy will be implemented, these are also expressed in a quantitative way through a budget.
The formulation of strategies requires for the executive a creative and innovative character (You have to compete less, you must win before the battle), it is not systematic derived from the conclusion of the analysis of the threats and opportunities of the environment, therefore it can come from any source and at any time.
Management control decisions are represented in an action plan that has less scope, since it is more specific where you must solve a specific problem with a shorter response time. A corrective action plan in response to a problem requires the specification for each objective of indicators and goals where it is necessary to measure, analyze and diagnose the cause of the problem and then select an appropriate corrective action from alternatives.
Table 1. Differences between Strategic and Management Control Decisions
| Perspective | Strategic decisions | Control Decisions |
| Related process | Strategic planning | Management control |
| objective | Specify objectives and strategies | Implement the objectives and strategies |
| Purpose | Anticipate (Proactive) | Correct (Reactive) |
| Horizon | Long term | Short term |
| Scope | The entire organization | Units of the organization |
| Representation | Strategic plan | Action plan |
| Data sources | Unstructured (Different Situations) | More structured |
| Quantitative and Qualitative | Quantitative (Measures-Goals) | |
| More Inaccurate | More Accurate | |
| Evaluation criteria | Subjective | goals |
Administrative tools for managerial decisions
The Administrative tools to support both types of decisions are related to a Management Control System (SCG) to support executives in Control Decisions and to Strategic Planning to support executives in Strategic Decisions.
The set of decisions resulting from strategic planning and a management control system is what is part of the Strategic Management process.
The Strategic Management is a comprehensive decision - making that should ensure the viability of the organization through the correct strategy formulation, implementation and control; For this, it uses not only the Management Control System as a form of implementation and control, but also considers changes to the organization's structure, the administration of human resources and the factors characteristic of the organization's culture.
The structure is where the responsibilities and relationships of dependencies are specified; Managing people-centered human resources as the main asset (difficult to replace with your own Know-How where knowledge exceeds having); and finally, the culture that is related to the common values and beliefs that it affects and that is affecting the way of leadership and the behavior of the directed considering also the non-formal aspects. All of the above is what is called Organization Architecture and encompasses the comprehensive means of implementing the strategy and supports the management control system.
Illustration 1. Scope of Management Decisions
A Management Control Systemaims to ensure that people within the organization implement the strategies formulated by managers aligning the specific objectives of each individual with global objectives so that they contribute to organizational objectives. This involves planning in cascade for each level; with objectives, indicators, goals and responsible people; vertical alignment of the objectives to meet the interests of the owners in terms of profitability and horizontal alignment to meet the requirements of the Clients. The negotiation of the commitments of each person with their superior is through goals for each indicator (The goals are not predetermined).The premise is that everyone prefers to be controlled to the extent that SCG is appropriate and serves as feedback for each individual and their superior, as well as a basis for establishing a more objective, transparent and fair system of incentives and rewards. The system is not automatic, it requires an evaluator who uses her senses to evaluate, it requires the coordination of individuals where there are decisions made based on the evaluator's personal perception and in addition to self-control derived from her own opinions.it requires coordination of individuals where there are decisions made based on the evaluator's personal perception and in addition to self-control derived from their own opinions.it requires coordination of individuals where there are decisions made based on the evaluator's personal perception and in addition to self-control derived from their own opinions.
Characteristics of Modern Management Control Systems
- Integration of planning and control functions Manage change Future-oriented, forward-looking management Use financial and non-financial indicators Manage value rather than cost Improvements in performance are customer and competition-oriented Consider changes in people's behavior Process-oriented Knowledge It should be distributed to everyone in the organization Decentralized and with an emphasis on strategic direction.
The main administrative tools for a Management Control System to support control decisions are:
- Balanced Scorecard (CMI) Budgets Financial Statements Process Reengineering and Transfer Pricing SixSigma ABM (Activity Based Management) Systems - ABC Cost (Activity Based Costing) Total Quality (TQM Total Quality Management)
The Strategic Planning is the process by which the organization faces opportunities and threats to the environment leveraging its capabilities and resources to create sustainable competitive advantages. The main components of the process are:
- VisionMissionPhilosophyStrategiesObjectivesGoalsPolicyProgramsProceduresRulesBudgetsBusiness unitsIntegration of business units (horizontal and vertical to achieve synergy) Portfolio management (Resources for each Business)
Administrative tools for strategic planning to support strategic decisions:
- Industry analysis (5 Porter forces). SWOT analysis (Strengths, Opportunities, Weaknesses and Threats). Value chain. BCG Matrix, SWOT, Attractiveness. Budgeting Market studies Decision trees Simulators Statistical Analysis
Bibliography
- Anthony Robert & Govindarajan Vijay. Management control systems. Tenth Edition. McGraw Hill Interamericana (Spain). 2003. Hax, Arnold and Nicolás Maxluf, Company management with a strategic vision. Chile. Santiago, dolmen editions. 1995 Fox, W Decision Making and Organizational Effectiveness: Systems Approach University of Florida, USA, 1995
