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Strategic planning is an organization’s process of defining its strategy, or direction, and making decisions on allocating its resources to pursue this strategy. Generally, strategic planning deals, on the whole business, rather than just an isolated unit, with at least one of following three key questions:
For example, the first and third questions are those that motivate an acquisition. Acquisitions are thus strategic choices. Typically strategic choices look at 3 to 5 years, although some extend their vision to 20 years (long term). Because of the time horizon and the nature of the questions dealt, mishaps potentially occurring during the execution of a strategic plan are afflicted by significant uncertainties and may lie very remotely out of the control of management (war, geopolitical shocks, etc.). Those mishaps, in conjunction to their potential consequences are called “strategic risks”. Untapped opportunities can also be seen as strategic risks, but in this post we will not analyze those upward-risks aspects.
Tactical planning is short range planning emphasizing the current operations of various parts of the organization. Short Range is generally defined as a period of time extending about one year or less in the future. Managers use tactical planning to outline what the various parts of the organization must do for the organization to be successful at some point one year or less into the future. Tactical plans are usually developed in the areas of production, marketing, personnel, finance and plant facilities. Because of the time horizon and the nature of the questions dealt, mishaps potentially occurring during the execution of a tactical plan should be covered by moderate uncertainties and may lie closer to the control of management (next year shipping prices, energy consumption, but not a catastrophic black-out, etc.) than strategic ones. Those mishaps, in conjunction to their potential consequences are called “tactical risks”.
Operational planning is the process of linking strategic goals and objectives to tactical goals and objectives. It describes milestones, conditions for success and explains how, or what portion of, a strategic plan will be put into operation during a given operational period.
An operational plan addresses four questions:
Operational risks are those arising from the people, systems and processes through which a company operates and can include other classes of risk, such as fraud, legal risks, physical or environmental risks. Operational risk are those resulting from inadequate or failed internal processes, people and systems, or from external events (man-made or natural hazards). A tailings dam failure, an open pit slide, a black-out (man-made or natural external hazard), and explosion in a processing plant are all operational hazards generating operational risks.
Since upper Management generally have a better understanding of the organization as a whole than lower level managers do, upper Management generally develops strategic plans. Because lower level managers generally have better understanding of the day-to- day organizational operations, generally they develop tactical and operational plans. Because strategic plans are generally longer term and are surrounded by more uncertainties in terms of their occurrence and consequences (one exception example: tailings management planned until closure, and after closure) strategic plans are generally less detailed than tactical plans. Thus the following can be inferred for a list of “top hazards” discussed in a report we reviewed recently:
However, despite their differences, strategic, tactical and operational planning are integrally related. Manager need both tactical and strategic planning program, and these program must be closely related to be successful. Thus, it can be inferred that Entreprise Risk Management (ERM) should deal very closely with these relations and the use of multiple Probability Impact Graph (PIG) matrices with multiple arbitrary scales is definitely not a rational, transparent solution.
For more information on Strategic, Tactical & Operational planning and related risks see follow-up post.