Business Decision Making

Verified

Added on  2023/01/13

|8
|1481
|1
AI Summary
This document provides an overview of business decision making, including the systematic process and the importance of financial and non-financial factors. It includes case studies and analysis of different capital budgeting techniques. The document also discusses the impact of these factors on the sustainability of an organization in a competitive environment.

Contribute Materials

Your contribution can guide someone’s learning journey. Share your documents today.
Document Page
Business Decision Making

Secure Best Marks with AI Grader

Need help grading? Try our AI Grader for instant feedback on your assignments.
Document Page
Table of Contents
INTRODUCTION...........................................................................................................................1
TASK...............................................................................................................................................1
CONCLUSION: ..............................................................................................................................4
REFERENCES ...............................................................................................................................5
.........................................................................................................................................................6
Document Page
INTRODUCTION
Business decision making is a systematic process of selecting best course of action
among other course of actions. In other words it is a method of taking strategic decision by
managers. Organisation use this framework for achieving their predetermine goal through
optimum utilization of their resource. To understand the concept of decision making ABC plc
has been taken. The company is established in united kingdom (Jankowski Lotov and Gusev,
2019).
They choose united kingdom and various countries of Europe as their target market area in
which they sell their software products. In this report uses of various financial accounting
technique in decision making . And importance of financial and non financial factors in decision
making has been identified.
TASK
Computation of Payback period of project A (Motor Software Project)
Years Net Cash Flow Total
1 8000 (40000)
2 12000 (32000)
3 16000 (20000)
4 20000 (4000)
5 30000
Payback period = Years before full recovery + Uncovered cost at starting of the year / Cash flow
during the year (Linder and Williander 2017 ).
Payback period = 3 + 4000 / 20000 = 3.2
Computation of Payback period of project B( Hardware Project)
Years Net Cash Flow Total
1 10000 (60000)
2 20000 (50000)
3 25000 (30000)
4 30000 ( 5000)
5 40000
1
Document Page
Payback Period =3 years & * 12 months = 3 years and 2. months.
Interpretation: Payback period is a method of analysis rate of risk of an
investment decision. In other words it is a tool of capital budgeting which uses to
define time period require an organisation to recover their initial capital. It is one
of the easiest method of analysing performance evolution of each alternative.
Mangers uses this technique as it provides quick solution and focus on liquidity. In
this case payback period of project A is 3 year and 2.4 moths and payback period
of project B is 3 years and 2 months . It means that if ABC plc invest in project A
then they take more time in recover their invested capital amount. Lower payback
period refers high efficiency quality of recovering capital amount by an
organisation. Thus project B is much beneficial for ABC plc then compare to
project A .
Computation of NPV of project A (Motor Software Project)
Period of Net Cash Flow £ Discounted Factor At 12% Present Value (Gylling Heikkilä,
Jussila, and Saarinen, 2015)
1 8000 .893 7144
2 12000 .797 9564
3 16000 .712 11392
4 20000 .636 12710
5 30000 .593 17010
Sum 57830
Formula of NPV = Total present value – Initial investment (Yoon Vo and Venkatraman, 2017).
NPV > £57830.82 – £40000 = £17830.82
Computation of NPV of project B(Hardware Project)
1 10000 .893 8930
2 20000 .797 15940
3 25000 .712 17800
2

Secure Best Marks with AI Grader

Need help grading? Try our AI Grader for instant feedback on your assignments.
Document Page
4 30000 .636 19080
5 40000 .593 22680
Sum 84430
Net present value =Total present value – Initial investment (Evert Martin McLeod and Payne,
2016).
Net present value = £84430 £ 60000 = £ 24430
Interpretation: Net present value is a method which use by managers to identify
present value of future cash inflows. This tool of capital budgeting also helps in decision making
process. Benefit of this method is that it includes value of time factor during the process of
decision making . Net present value use to compare profitability level of alternatives . In this
case net present value of project A is 17830 and project B is 24430. That means project B
generate more profits in future then compare to project because et preset value of project B is
high then compare with project A.
Factors define as those resources which helps in regulating business entities. Success of an
organisation is depends on how these factors effect in running organisation. Financial and non
financial factor are part of factors. Financial factors are those resources which are necessary for
business entities. These factors helps in maintaining capital requirement of an entity. Profits,
interest , rate of interest, sources of income, cash equivalent , tax considered as financial factors.
Non financial factors are those factor which directly impact on the level of efficiency of an
organisation. Workforce, raw materials, social environment, rules and regulation of organisation
are considered as non financial factors. Managers uses financial and non financial factors in
their decision making process. Requirement of financial and non financial factors are mention
below :
Financial factors
Manager make decision after considering availability of monetary stock of the
organisation (Gautier A. and Pache, 2015).
These factors helps management to recognize risk elements available in alternatives
Business entities use financial and non financial factors as these factors help in analysing
performance status of their business activities within the organisation.
3
Document Page
Policies and strategic planning are made after considering effect of non financial factors
on organisation.
Non financial factors
Business decide to choose those factors which can be understood and easily adopt by
their workforce (Trianni Cagno and Farné, 2016).
Decisions are made on the basis of managerial policies and management styles adopted
buy organisations to run their business.
Rate of interest and returning rate directly impact on decision making process as
managers choose those alternative whose interest rate on investment is high compare to
other alternatives.
Financial factors use in decision making process as managers make decision regarding
providing incentives , bonus and promotion is totally depends on the net profit generating
by an organisation for particular time period.
Factors are essential tool in decision making process as all the decision regarding financial ,
investing and others are totally depends on impact of financial and non financial factors of the
business organisation (Jamali and Karam, 2018).
CONCLUSION:
From the above analysis it has been concluded that success of an entity is depends upon
the decisions take by their ,mangers to achieve their goals. Thus business decision making is an
essential process which help managers to decided best alternative projects with compare to
others. Organisations uses different capital budgeting technique to analysis profitability and
efficiency level of each alternative. Managers of an organisation take decision regarding business
activities on the basis of their financial and non financial factors as they directly impact on their
sustainability level in competitive environment.
4
Document Page
REFERENCES
Books and Journals:
Jankowski, P., Lotov, A. V. and Gusev, D., 2019. Application of a multiple criteria trade-off
approach to spatial decision making. In Spatial Multicriteria Decision Making and
Analysis(pp. 127-148). Routledge.
Linder, M. and Williander, M., 2017. Circular business model innovation: inherent
uncertainties. Business strategy and the environment, 26(2), pp.182-196.
Gylling, M., Heikkilä, J., Jussila, K. and Saarinen, M., 2015. Making decisions on offshore
outsourcing and backshoring: A case study in the bicycle industry. International
Journal of Production Economics. 162. pp.92-100.
Yoon, S., Vo, K. and Venkatraman, V., 2017. Variability in Decision Strategies Across
Description‐based and Experience‐based Decision Making. Journal of Behavioral
Decision Making. 30(4).pp.951-963.
Evert, R. E., Martin, J. A., McLeod, M .S. and Payne, G. T., 2016. Empirics in family business
research: Progress, challenges, and the path ahead. Family Business Review. 29(1).
pp.17-43.
Gautier, A. and Pache, A. C., 2015. Research on corporate philanthropy: A review and
assessment. Journal of Business Ethics.126(3). pp.343-369.
Trianni, A., Cagno, E. and Farné, S., 2016. Barriers, drivers and decision-making process for
industrial energy efficiency: A broad study among manufacturing small and medium-
sized enterprises. Applied Energy, 162, pp.1537-1551.
Jamali, D. and Karam, C., 2018. Corporate social responsibility in developing countries as an
emerging field of study. International Journal of Management Reviews. 20(1). pp.32-
61.
5

Paraphrase This Document

Need a fresh take? Get an instant paraphrase of this document with our AI Paraphraser
Document Page
6
1 out of 8
circle_padding
hide_on_mobile
zoom_out_icon
[object Object]

Your All-in-One AI-Powered Toolkit for Academic Success.

Available 24*7 on WhatsApp / Email

[object Object]