Information Needs at Strategic, Tactical and Operational Levels

A managing director deciding whether to buy a competitor, a head of department checking this month’s spending against budget, and a supervisor deciding at eight in the morning how to cover three absent staff are all managers, and all of them need information. But the information is not the same. The director needs a few summary figures about the whole company and the market over several years.

The head of department needs last month’s figures against budget, department by department. The supervisor needs today’s facts, one job at a time. A management information system that gives all three the same report serves none of them well.

This topic explains the three levels of management, the information each level needs, how planning, control and decision-making link them, how a strategic plan is built, and how critical success factors and key performance indicators turn strategy into measures. It builds on the internet, intranet, wireless technology and networks topic.

The next topic covers the types of information system that supply this information: transaction processing, management information, executive information, enterprise resource planning and customer relationship systems.

Why managers need information, and the three levels

What managers do with information

The tasks of management are to set targets and make plans, communicate, organise and coordinate activities, give leadership, motivate, monitor performance and take control action. Managers use information to:

• Plan: set objectives and decide how to reach them. A budget needs forecasts of sales prices, quantities and costs.
• Control: compare actual performance with the plan or target, take action where results differ, and evaluate performance. Control information may be a routine report or a warning when something unusual happens.
• Take one-off decisions outside the formal planning and control system.
• Communicate decisions and coordinate activities with other people.

The purpose of management accounting is to supply relevant and reliable information for planning, control and decision-making, and its value depends on whether it helps managers decide better.

The three levels of management

Management is classified by the type of decision taken at each level, and each level needs a different kind of information. R. N. Anthony identified three levels of planning, and the same three apply to management.

• Strategic management sets the objectives of the organisation and develops strategies to reach them. It decides the general direction: the markets, the products or services and the resources. It is the work of senior managers, and the planning horizon is long, five to ten years or more. Strategic plans include corporate, business and functional plans.
• Tactical management makes plans and decisions within the framework of strategy and monitors whether plan targets will be met, taking control action when they will not. Its horizon is about a year. It is usually tied to the annual budget and budgetary control, and it is the work of middle managers. In a flat structure, senior managers may take tactical decisions too.
• Operational management runs day-to-day operations: scheduling work, monitoring output and daily efficiency. The horizon is short and decisions often cannot wait. It is the work of supervisors and front-line managers.

There is no clear line between tactical and operational management. The difference is mainly detail: tactical management looks at a whole department over a week, operational management at individuals or small groups over a day.

The features of information at each level

In many ways all three levels deal with the same things, business plans and actual performance, in different amounts of detail and at different frequencies. The features differ on these dimensions.

• Scope. Strategic: the organisation as a whole or a large part of it. Tactical: individual departments and operations. Operational: specific transactions, jobs, tasks, daily workloads, individuals or work groups.
• Detail. Strategic: summary, without too much detail. Tactical: summary, but more detailed than strategic. Operational: the most detailed, though it may be summarised for a work group or section.
• Time horizon. Strategic: long term and often forward-looking. Tactical: short and medium term; may be forward-looking but is often performance measurement, based on past results. Operational: very short term, such as the day.
• Source. Strategic: both internal and external. Tactical: both, but mostly internal. Operational: almost wholly internal.
• Frequency. Strategic: often ad hoc, not routine reports. Tactical: routine and regular, such as monthly or weekly reports. Operational: regular, or available online when needed.
• Nature. Strategic: quantified and qualitative. Tactical: mainly quantified. Operational: mainly quantified and factual.
• Uncertainty. Strategic: high, especially for forecasts over several years. Tactical: some, but much less because the plans are shorter. Operational: little, because most of it is fact.

Examples at each level

• Strategic: the board compares the company with three competitors on price-earnings ratio, market share and growth, gearing and employee numbers, identifies possible take-over targets, forecasts the combined business and later monitors the share price. Access is restricted, because the information is confidential.
• Tactical: monthly management accounts to divisional heads, who compare actual results with budget and revise the annual forecast. Typical content is variance reports, productivity reports, sales by product or customer, capacity usage, and divisional return on investment and profit margins.
• Operational: a daily production plan that shows possible stock shortages so that requisitions can be raised; the number of employees absent; wastage rates; whether the day’s workload is complete; delays and their causes; whether a customer’s order will be finished on time.

With modern systems and databases, all levels of information can be available online on demand, so the difference lies in who needs what and how it is summarised, not in whether it can be obtained.

One target, three levels of decision

A training company has a strategic target to raise sales. At strategic level management decides to raise sales by 20% and studies the market to choose between growing the existing business, buying a competitor or diversifying into other training. At tactical level a budget is prepared for the next year, with targets for each course and each centre, and plans such as more advertising and more trainers.

At operational level managers decide on free study materials as an offer, extra classes when demand is strong, and the collection of fees.

How a strategic plan is built

Planning is hierarchical: strategic plans set the framework within which shorter-term plans are made. Strategic planning and control is the continuous process of setting goals and objectives, planning strategies, setting targets for each objective, converting strategies into shorter-term operational plans, implementing, monitoring actual performance and taking control action. It must also be flexible, because the environment can change quickly.

In practice strategic planning mixes a formal plan with new decisions when events require them, sometimes called freewheeling opportunism.

• Objectives. Clear objectives consistent with the mission, such as maximising shareholders’ wealth, taking account of stakeholders’ interest and power.
• Strategic analysis. An environmental analysis of outside developments and a position audit of internal strengths and weaknesses, often combined in a strengths, weaknesses, opportunities and threats (SWOT) analysis.
• Strategic choice. Strategies that use strengths, remove weaknesses, take opportunities and guard against threats.
• Evaluation. Options are tested for suitability, feasibility and acceptability.
• Implementation. The chosen strategies are put into effect and monitored, with attention to change management and project management.
• Review and control. Information systems monitor progress, which matters most when the timing of progress points decides success.

Critical success factors and key performance indicators

Critical success factors (CSFs) are the limited number of areas in which satisfactory results will ensure successful competitive performance, so critical that if the objectives linked to them are not achieved, the organisation will fail.

They are found top-down: start from the main long-term objective, decide five or six higher-level objectives that must be met to achieve it, then for each one a few critical supporting objectives, and so on down to the lowest level. Every factor identified as critical must be met.

Each CSF needs a key performance indicator (KPI), a measure that shows whether the objective or target has been met. The KPI is used to set targets and to monitor actual performance by comparing results with target.

For a commercial company whose objective is shareholder wealth, a CSF might be a minimum annual sales volume that earns a sufficient return on investment, and the KPI the annual sales volume or a target market share. Planning teams of managers agree the CSFs and KPIs, and may rank them.

A performance management system therefore needs clear objectives (the CSFs), a target for each (the KPIs), measurement of actual performance, and a comparison of actual with target or of forecast with target. A system for senior managers can show current and historical performance in the key areas, with a facility to drill down into more detail.

Qualities of good information

Whatever the level, information is only useful if it has certain qualities. It must be relevant to the decision, reliable (accurate and complete enough for its purpose), timely (available when it is needed), realistic, so that users have confidence in it, economical (it should not cost more than it is worth), accessible to the person who needs it, secure from unauthorised users, and addressed to the right recipient.

Strategic information is often based on estimates and may be incomplete, so users need to know how reliable it is, but it must still be good enough for the decision.

Performance measurement and planning targets

Every managed organisation needs a system of performance measurement, because managers must know what they are trying to achieve and whether they are succeeding. Each plan (strategy, budget, operational plan) has objectives and targets, and managers compare actual results with the target and the target with the current forecast. Where possible targets, forecasts and results are quantified, financial or non-financial, because numbers are easier to compare than descriptions.

The objective of a company is normally a high return to its shareholders, consistent with the risk it takes; for a not-for-profit body the objectives are non-financial and relate to its purpose.

Corporate and strategic objectives are turned into planning targets: clear statements of what is to be achieved in a stated period. They are set at strategic, tactical and operational levels and must be consistent with each other. When the environment changes they must be reassessed. Differences between actual results and targets are analysed for their causes, and action is taken to deal with them.

A formal system clarifies the objectives and shows how each department and individual contributes; agrees measures of activity based on key success factors; improves understanding of processes; allows comparison between organisations or divisions; sets targets over a suitable period; promotes accountability to stakeholders; and can be linked to rewards. Management accounting is central to such a system, although many targets are not financial.

Turning a strategic target into targets and control reports

Questions test the cascade from a strategic target to tactical and operational targets, and the control report that compares results with them. Use these layouts.

1. Strategic target. Current figure × (1 + planned growth).
2. Tactical targets. Strategic target × share for each department, centre or product.
3. Operational target. Tactical target ÷ price or rate per unit = units; units ÷ number of periods = units per period.
4. Variance. Actual − budget, labelled favourable (F) or adverse (A): for revenue, higher actual is favourable; for costs, higher actual is adverse.
5. Variance percentage. Variance ÷ budget × 100.
6. Exception reporting. Investigate only items whose variance percentage exceeds a set threshold, so that managers’ time goes where it matters.

Money is in ₦ million to one decimal place unless stated, percentages are to one decimal place, and each answer is rounded once, at the end.

Worked examples

1. Strategic target.
   250.0 × 1.20 = ₦300.0m.
2. Centre targets.
   Lagos 300.0 × 40% = ₦120.0m
   Abuja 300.0 × 25% = ₦75.0m
   Port Harcourt 300.0 × 20% = ₦60.0m
   Ibadan 300.0 × 15% = ₦45.0m.
   The total is 300.0, so the targets foot.
3. Lagos students.
   ₦120,000,000 ÷ ₦150,000 = 800 students a year.
4. Lagos per intake.
   800 ÷ 4 = 200 students for each intake.
   This is the figure the centre manager monitors, and it is operational information.

1. Budget profit.
   80.0 − 46.4 − 12.0 − 8.0 = ₦13.6m.
   Actual profit. 76.0 − 45.6 − 12.9 − 8.2 = ₦9.3m.
2. Revenue.
   76.0 − 80.0 = 4.0 A
   4.0 ÷ 80.0 = 5.0% adverse.
   Investigate.
3. Cost of sales.
   46.4 − 45.6 = 0.8 F
   0.8 ÷ 46.4 = 1.7% favourable.
   No action.
4. Staff costs.
   12.9 − 12.0 = 0.9 A
   0.9 ÷ 12.0 = 7.5% adverse.
   Investigate.
5. Other costs.
   8.2 − 8.0 = 0.2 A
   0.2 ÷ 8.0 = 2.5% adverse.
   No action.
6. Profit.
   9.3 − 13.6 = 4.3 A
   4.3 ÷ 13.6 = 31.6% adverse.
   The items add up: −4.0 + 0.8 − 0.9 − 0.2 = −4.3.
7. Operating margin.
   Actual 9.3 ÷ 76.0 = 12.2%
   budget 13.6 ÷ 80.0 = 17.0%.
8. Comment. A 5% shortfall in sales and a 7.5% overspend on staff cost have cut profit by nearly a third. The manager should find out whether the revenue shortfall is volume or price, and why the staff cost rose when sales fell.

Expect variants: a different threshold, targets shared by product instead of centre, a target set over two years, or a request to say which level of management uses each report.

Common mistakes

• Giving the same information to every level. Say how the detail, time horizon, source and frequency change.
• Saying strategic information is detailed. It is summarised and forward-looking, with high uncertainty.
• Mixing tactical and operational. The annual budget and monthly variance reports are tactical; today’s absentees and wastage are operational.
• Listing features with no example. Tie each level to the business in the question.
• Calling every measure a KPI. A KPI belongs to a critical success factor and has a target.
• Calling an adverse variance a favourable one. Higher revenue is favourable; higher cost is adverse.
• Targets that do not add up. Check that the centre targets foot to the strategic target.

Quick revision

• Managers use information to plan, control, take one-off decisions, communicate and coordinate.
• Strategic: senior, five to ten years or more, whole organisation, summary, forward-looking, internal and external, ad hoc, qualitative and quantified, high uncertainty.
• Tactical: middle, about a year, departments, budget and variance reports, mostly internal, routine, mainly quantified, some uncertainty.
• Operational: supervisors, day to day, specific tasks, detailed, almost wholly internal, factual, little uncertainty.
• Strategic planning: objectives, analysis (environment and position audit), choice, evaluation (suitability, feasibility, acceptability), implementation, review and control.
• Critical success factors are found top-down; each needs a key performance indicator and a target.
• Variance % = (actual − budget) ÷ budget; investigate only items over the threshold.

How the marks are earned

• Distinguish: a feature of each level, set side by side, about one mark per feature compared, plus an example.
• State characteristics: one mark each, using the dimensions above.
• Calculate: show the layout and every step; the foot check protects your marks.
• Discuss or advise: link information to the level of management that uses it and end with a recommendation.

Practice questions

These are original questions, written in the style of the Skills examination. Work each one before you open the answer.

Recall check: multiple choice

Section B style: written questions

Model answers

Spotted a mistake? Tell us and we will check it.