While we discuss wealth maximization the concepts of objective and decision criteria must be differentiated. At the first sight, the two criteria look similar. However, there are some inherent differences between the two. Knowing the differences is important because the companies deal with these criteria day in and day out.
The objective criterion is the aim or goal the company wants to achieve in the longer term. The objectives guide the overall operations and decision-making processes of the firm. Mission and vision are included in the objective criteria. The importance of objective criterion is the most for managers who make the objectives of the company possible on the ground.
Objective Criterion is an important factor while making strategies and goals for an organization. To achieve the objectives, policies are put in place. Combining strategic goals and policies provides the infrastructure of the company. In the long run, the objective criterion is more important than the decision criterion.
Note − Objective criteria set the standards of a company in terms of longterm goals and achievements.
As the name suggests, Decision Criterion deals with the decision-making process of a company. The decisions criterion follows the objective criterion during application. Decisions are made depending on a lot of factors. In finance, long-term profitability and wealth maximization are two important issues. The decision criterion helps the companies achieve them in the long term by making and acting on decisions.
Managers play a pivotal role in decision making and they are inseparable from the decision criterion. A company's future is obtained in steps – managers need to make decisions at every step. Therefore, the decision criterion is a short-term measure in comparison to the objective criterion.
Note − Decision criterion is more about making decisions keeping objective criteria alive.
A company must be clear about objectives and decision criteria for success in the longer term.
Objectives are the aims of a company while decisions are a mode to achieve them.
Objective criterion guides the managers to fulfill decision criteria.
Objective criteria are more for motivation and guidance while decision criterion is for the smooth run of the company.
Objectives define the mission, vision, and goals while decision criterion works following them.
Objective criterion is less changed but decision criterion changes frequently.
Note − Objective and decision criteria work in hand to hand for smoother operations of a company.