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Management Accounting Tactical Decision Making

By HWA | Publish On: August 22, 2011 | Posted In:

Tactical decision making consists of choosing among alternatives with an immediate or limited end in view. Accepting a special order for less than the normal selling price to utilize idle capacity and increase the year’s profits is an example. Thus, some tactical decisions tend to be short-run in nature. However, it should be emphasized that short-run decisions often have long-run consequences. Considering a second example, suppose that a company is considering producing a component instead of buying it from suppliers. The immediate objective may be to lower the cost of making the main product. Yet, this tactical decision may be a small part of the overall strategy of establishing a cost leadership position for the firm. Thus, tactical decisions are often small-scale actions that serve a larger purpose.

The overall objective of strategic decision making is to select among alternatives the strategies so that a long-term competitive advantage is established. Tactical decision making should support this overall objective, even if the immediate objective is short-run or small-scale. Thus, sound tactical decision making means that the decisions made not only achieve the limited objective but also serve a larger purpose. In fact, no tactical decision should be made that does not serve the overall strategic goals of an organization. A good example of a company that has made tactical decisions that are in accordance with its strategic goals is Hyatt Hotels Corporation. In the early 1990s, steep costs jeopardized a number of Hyatt’s management contracts. It was necessary to reduce the cost structure fast. However, Hyatt attacked only the costs that guests did not particularly care about (for example, turn down service, in which the back covers are turned down at night and mint is left on the pillow). Services that were important to business travelers, whom Hyatt courted, were expanded.

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A model for Making Tactical Decisions

How does a company go about making good tactical decisions? A general approach to making tactical decisions.

  • Recognize and define the problem
  • Identify alternatives as possible solutions to the problem; eliminate alternatives that are clearly not feasible.
  • Identify the costs and benefits associated with each feasible alternative. Classify costs and benefits as relevant or irrelevant and eliminate irrelevant ones from the consideration.
  • Total the relevant costs and benefits for each alternative.
  • Assess qualitative factors.
  • Select the alternative with the greatest overall benefit.

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