Business Decision Making

This essay discusses the importance of decision making in business management and provides an evaluation of an investment proposal. It explains the application of investment appraisal techniques, such as net present value and payback period, and compares two projects. The factors to be considered for undertaking decisions, both financial and non-financial, are also discussed.

Business Decision
Making

TABLE OF CONTENTS
INTRODUCTION......................................................................................................................3
Application of investment appraisal techniques....................................................................3
Factors to be considered for undertaking decisions...............................................................5
CONCLUSION..........................................................................................................................6
REFERENCES...........................................................................................................................7

INTRODUCTION
Decision making is an important function of business management which states that
a business organization can only survive through the way of taking right decisions pertaining
to the business. At every step, an organization is required to take decisions which can be
monetary terms and in non-monetary. This essay provides an evaluation of the investment
proposal of the Genesis & Dreams Ltd and along with that the factors which are essential to
be taken into account for making decisions.
Application of investment appraisal techniques
For the purpose of determining the feasibility of the projects NPV and PBP method
is being applied in the given scenario.
Net present value
NPV helps an organization in knowing whether it is feasible to invest in the project
or not through the way of calculating the current value of the cash flow which will be
generated in the future (Dong and Li, 2016). If the outcome is positive, the project is accepted
otherwise rejected.
Calculation of NPV of Project A
Year Cash inflows PV factor
@ 14%
Discounted cash
inflows
1 18000 0.877 15789.47
2 16000 0.769 12311.48
3 19000 0.675 12824.46
4 22000 0.592 13025.77
5 37000 0.519 19216.64
Total discounted cash inflow 73167.82
Initial investment 70000
NPV (Total discounted cash
inflows - initial investment) 3167.82
Calculation of NPV of Project B
Year Cash inflows
PV factor
@ 14%
Discounted cash
inflows

1 21000 0.877 18421.05
2 27000 0.769 20775.62
3 30000 0.675 20249.15
4 32000 0.592 18946.57
5 32000 0.519 16619.80
Total discounted cash inflow 95012.19
Initial investment 84000
NPV (Total discounted cash
inflows - initial investment) 11012.19
Interpretation: After comparing NPV of both the projects, it becomes very clear that the
company should go for Project B as it is having higher NPV as against Project A, even
though the outcome under the both the projects is positive and can be accepted (Hafenstein
and Bassen, 2016). But Genesis & Dreams Ltd an invest only in one project thus, Project B is
the right choice.
Payback period
It accounts for the time frame within which the business entity would be able to
recover the amount it has invested at the starting of the project (Intezari and Pauleen, 2018).
It is desirable to have a lower PBP as the company can quickly invest the same in the other
project. Along with that, lower PBP reduces the chances of risk.
Calculation of Payback period of Project A
Year Total cash
flow Cumulative cash flow
0 -70000 -70000
1 18000 -52000
2 16000 -36000
3 19000 -17000
4 22000 5000
5 37000 42000
Payback
period 3 years + 17000/22000 = 3.77 years
Calculation of Payback period of Project B

Year Total cash
flow Cumulative cash flow
0 -84000 -84000
1 21000 -63000
2 27000 -36000
3 30000 -6000
4 32000 26000
5 32000 58000
Payback
period 3 years + 6000/32000 = 3.19 years
Interpretation: From the above table it can be computed that PBP of Project B is 3.19 years
which is lower than that of Project A which is 3.77 years (Jaiyeoba and Haron, 2016). Thus,
it is appropriate for the organization to make an investment into Project B.
Thus, under both the valuation technique Project B appears to be the right choice for
making an investment. Therefore, Genesis & Dreams Ltd should invest into this project.
Factors to be considered for undertaking decisions
Investment mainly refers to putting money into the capital goods which will help in
generating advantages for the business in a long term. But it is important to understand that
financial factors are vital aspect for the decision making but there are certain non-financial
aspects which are also having an influence over the business operation. Some of them are
stated below.
Financial factors
Sources of funding: It is important to evaluate the various sources which are
available to eth business for procuring funds along with analyzing the risk associated with
each of such source so that effective decision can be taken on account of funding.
Profitability of the company: This factor is also crucial in getting required amount
of fund (Lu, Han, Hu and Zhang, 2016). If the company is having stable earnings over the
years, it increases the chance for getting the funds more easily as it highlights it efficiency in
repaying the same on time. Otherwise, it might create a problem for the company.
Risk factor: This is also can important point which many a times organizations fails
to identify. It accounts for the financial risk that the company may to exposed to if it invests
in the desired project.
Non-financial factors:
Knowledge and skills of the employees: It is important to understand that
introduction of the new system, machinery or any other things would have an impact over the

employees (Maxwell, 2016). The company needs to understand whether the current employee
group is having the relevant skill set for dealing with the same. Along with that whether it
will affect the morale and motivational level of the employees.
Market prospects: Another non-financial factor is the future market position. It is
crucial to analyze whether there is any possibility that in future there will be not growth in the
respected market in which the company is willing to invest (Verma, 2016). Thus,
organization is needed to conduct extensive market research in order to ensure whether the
market is growth oriented or not.
Government legislations: Along with that, it requires to comply with various
government regulatory standards and the legislation in order to run the business operations
smoothly. Otherwise, it may negatively impact the reputation of the organization. Thus, these
factors are very important for taking business decisions and attaining long term goals.
CONCLUSION
It can be concluded that it is very crucial for every business organization to
effectively evaluate each and every aspect before undertaking a decision pertaining to making
an investment. The organization requires to consider various elements such as cost, risk,
profitability, competency of the workforce and so forth in order to gain much benefit from the
investment undertaken. Based on the given situation, it is economically feasible for Genesis
& Dreams Ltd to invest its funds in Project B instead of Project A.

REFERENCES
Books and Journals
Dong, M. G. and Li, S. Y., 2016. Project investment decision making with fuzzy information:
A literature review of methodologies based on taxonomy. Journal of Intelligent &
Fuzzy Systems. 30(6). pp.3239-3252.
Hafenstein, A. and Bassen, A., 2016. Influences for using sustainability information in the
investment decision-making of non-professional investors. Journal of Sustainable
Finance & Investment. 6(3). pp.186-210.
Intezari, A. and Pauleen, D. J., 2018. Conceptualizing Wise Management Decision‐Making:
A Grounded Theory Approach. Decision Sciences. 49(2). pp.335-400.
Jaiyeoba, H. B. and Haron, R., 2016. A qualitative inquiry into the investment decision
behaviour of the Malaysian stock market investors. Qualitative Research in
Financial Markets.
Lu, J., Han, J., Hu, Y. and Zhang, G., 2016. Multilevel decision-making: A
survey. Information Sciences. 346. pp.463-487.
Maxwell, A., 2016. Investment decision-making by business angels. In Handbook of
Research on Business Angels. Edward Elgar Publishing.
Verma, N., 2016. Impact of Behavioral Biases in Investment Decision and
Strategies. Journal of Management Research and Analysis. 3(1). pp.28-30.