Strategic and Tactical Decision Making

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Strategic and tactical thinking and decision making are the main concerns of

the financial management of a corporation. A financial plan must be part of the

overall strategic plan for the corporation (Brigham, Gapenski, & Davies, 2004).

It is a major component of that overall strategic plan and as such, it has all of

the components of the larger corporate strategic plan, such as a financial

mission statement (Gitman, 2006). The strategic plan of the corporation is

focused on the long-term direction of the company (Reeve, Warren, & Duchac, 2011).

Tactics, in relation to the strategic financial plan, are the methods used to

achieve the strategic objectives of the financial plan (Block, Hirt, & Danielsen,

2009). This is part of the operating plan that focuses on the day-to-day

operations of the company. This operating plan is built around the operating

budget, which includes the following (Siegel, Dauber, & Shim, 2005):

Sales budget

Production budget

Direct materials budget

Direct labor budget

Overhead budget Selling and administrative expense budget

The central part of the overall financial plan is the financial budget, which

includes the cash budget and pro forma financial statements, both of which set the tone of the strategic financial plan (Shim & Siegel, 2008).

The financial planning process includes the following five steps (Brigham et al.,

2004):

1. Prepare pro forma financial statements.

2. Determine the capital needs of the corporation.

3. Identify the sources of capital funds available for the next 3–5 years.

4. Implement a system of controls to manage the allocation of funds.

5. Formulate a monitoring and revision plan.

This planning process integrates strategic and tactical perspectives into each of

these steps. Basically, the corporation needs to have a plan to achieve its

goals. Making decisions in the context of strategic and tactical considerations

requires a broad understanding of the corporation’s position in the industry and

its prospects for the future. An analysis of economic conditions is factored into

this decision-making process. Different event horizons may need to be explored

in the decision making process. Strategic decision making focuses on event

Strategic and Tactical Decision Making

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horizons of 3–5 years; sometimes it is longer, depending on the needs and

opportunities of the corporation. Tactical decision making is more focused on

the day-to-day concerns of the corporation and operational procedures that can

dramatically impact the strategic success or failure of the company’s long-term

goals.

References

Block, S. B., Hirt, G. A., & Danielsen, B. R. (2009). Foundations of financial management (13th ed.) New York, NY: McGraw-Hill.

Brigham, E. F., Gapenski, L. C., & Daves, P. R. (2004). Intermediate financial management (8th ed). Orlando, FL: Dryden Press.

Gitman, L. J. (2006). Principles of managerial finance (11th ed.). Boston, MA: Addison-Wesley.

Merna, T., & Al-Thani, F. F. (2008). Corporate risk management (2nd ed.). Chichester, West Sussex, England: John Wiley & Sons.

Reeve, J. M., Warren, C. S., & Duchac, J. (2011). Accounting using Excel for

success. Mason, OH: Cengage/South-Western.

Shim, J. K., & Siegel, J. G. (2008). The vest pocket CFO (3rd ed.). Paramus, NJ: Prentice Hall.

Siegel, J. G., Dauber, N. A., & Shim, J. K. (2005). The vest pocket CPA (3rd

ed.). Paramus, NJ: Prentice Hall.