Business Decision Making

This report discusses the process of business decision making and its importance for organizations. It explores the techniques used for decision making, such as calculating payback period and net present value. The report also highlights the impact of financial and non-financial factors on decision making.

Business Decision Making

Table of Contents
Introduction......................................................................................................................................1
TASK..............................................................................................................................................1
CONCLUSION ...............................................................................................................................4
REFERENCES ...............................................................................................................................5
REFERENCES ...............................................................................................................................6

Introduction
Business decision making is a process of selecting best alternative among two or more
than two alternatives. Success of an organisation is depends on how effective and useful
decisions are taken by department of management (Alac 2018 DEWI M 2018). Decision making
process help organisation to achieve predetermined objective with optimum utilization of their
scarce resources. In this report ABC plc is taken which is situated in united kingdom. ABC plc
provides computers software services to their customers.
This report contents techniques used by the company to take decision and how financial
and non financial factors affect company to take essential decision regarding expansion of
business.
TASK
Calculation of payback period of project A
Year Net Flow Total
1 8000 (40000)
2 12000 (32000)
3 16000 (20000)
4 20000 (4000)
5 30000
Payback period formula: Completed year + Initial investment – cumulative cash inflow at the
end of the year / Cash flow of next year (Ittner and OyOn, 2019).
The Payback Period is: 3 years & * 12 months = 3 years and 2.4 months.
Calculation of payback period of project B
Year Net Flow Total
1 10000 (60000)
2 20000 (50000)
3 25000 (30000)
4 30000 ( 5000)
5 40000
The Payback Period is:3 years & * 12 months = 3 years and 2. months.
1

Interpretation: Payback period is a technique of capital budgeting. It is a period which
defines time period requires to recover initial invested cash outflows. Organisations uses this
method for identifying best alternatives and projects through which entity cover up their invested
capital as soon as possible (Harrington and et. al., 2019). In this scenario ABC plc had projects in
which they invest their capital. Project first is related with motor software and in another project
company invest in hardware project. For project A company needs to invest 40000. Payback
period of this project is 3.2 years that means organisation needs 3.2 years to recover their
invested capital amount. On the other side ABC plc needs 60000 to invest in their hardware
project. Payback period of this project is 3.166 years, which means that the entity take 3.16 years
to recover their invested cash inflow. Manager of ABC plc decide to invest in project B as it is
more beneficial for them because their period of recovery is less then project B.
Calculation of Net present value of project A (Gomes Costa, and de Barros,2017)
Year Net Cash Flow £ Discount Factor At 12% Present Value
1 8000 .893 7144
2 12000 .797 9564
3 16000 .712 11392
4 20000 .636 12710
5 30000 .593 17010
Total 57830
Net present value: Total present value – Initial investment
The NPV = £57830.82 – £40000 = £17830.82
Calculation of Net present value of project B
Year Net Cash Flow £ Discount Factor At 12% Present Value
1 10000 .893 8930
2 20000 .797 15940
3 25000 .712 17800
4 30000 .636 19080
5 40000 .593 22680
Total 84430
Net present value: Total present value – Initial investment
£84430–£ 60000 = £ 24430
2

Interpretation: Net present value is defined as the value which represent current value
of future cash inflows of a project. Managers use this method to identify profitability ratio of an
investment. Net present value is calculated by deduction of present value with initial investment.
Higher amount of net present value shows high profitability level. In this case net present value
of project A is 17830.82 and project B is 24429.55, that means B project is more beneficial to
ABC PLC because their profitability amount is higher then compare to project A.
From the calculation of capital budgeting techniques it is clearly identified that ABC plc
invested in project B because it is more beneficial for organisations future earnings.
Factors are those elements which help an organisation to run their business in the market
environment. Factors are divided into two parts which are financial factors and non financial
factors. Financial factors includes profit, interest, taxes, dividends etc. Non financial factors
included management policy, skills of human resources goodwill of company, brand value of
products etc. Both are essential part of an entity. Importance of these factors for decision making
are mention as below:
 These factors helps management to decide best among others alternatives, company take
this decision after calculating profitability level of each projects (Ali, Ali, and Rehman,
2018).
 Financial factors helps to identify risk level of each project. Managers identify tax and
interest rate of each project to analysis risk level of their alternatives.
 Company uses managerial polices in decision making process, effective managerial
policies help organisations to choose best alternative
 Non financial factors help in decision making as company take decision in favour of
those projects whose brand value is higher in compare to other alternatives (Saxena,
2016).
 Organisation take decision after identifying efficiency level of their human resource
factors because success of an project totally depends how well work force of an
organisation compete their duties.
 Manager of an entity take decision on the basis of their availability of capital and
financial sources (Wu and Han, 2018,).
3

CONCLUSION
From the above report it has been concluded that business decision making is an essential
component for an organisation as it helps management to identify best option from other
alternatives. Organisations uses various capital budgeting techniques to analysis profitability
level of their projects. Managers uses financial and on financial factors for deciding best
alternative which helps in deciding those alternatives through which entity can achieve their
predetermining goals with maximum benefits and minimum rate of risk return.
4

REFERENCES
Books and Journals:
Alac, P., 2018. APPLICATION OF MULTI CRITERIA DECISION MAKING METHODS
FOR THE EVALUATION OF LOGISTICS PROCESSES IN PARTICULAR
WOODPROCESSING ENTERPRISE. In Actual scientific research (pp. 47-54).
DEWI, M. A., 2018. ANALISIS VALUASI HARGA SAHAM PT. MERCK, Tbk: PASCA
DIVESTASI BISNIS CONSUMER HEALTH (Doctoral dissertation, Universitas
Gadjah Mada).
Harrington, R . J., and et. al., 2019. From goods-service logic to a memory-dominant logic:
Business logic evolution and application in hospitality. International Journal of
Hospitality Management, 76, pp.252-260.
Saxena, S .S., 2016. An Empirical study on Decision Making Styles among Students Pursuing
Interest in Sustained Family Businesses. Siddhant-A Journal of Decision Making, 16(1),
pp.79-87.
Ittner, C. D. and OyOn, D., 2019. Risk Ownership, ERM Practices, and the Role of the Finance
Function. Journal of Management Accounting Research.
Gomes, C. F. S., Costa, H. G. and de Barros, A. P., 2017. Sensibility analysis of MCDA using
prospective in Brazilian energy sector. Journal of Modelling in Management.
Ali, A., Ali, M. I. and Rehman, N., 2018. A more efficient conflict analysis based on soft
preference relation. Journal of Intelligent & Fuzzy Systems, 34(1), pp.283-293.
Wu, C. and Han, Y., 2018, September. The Impact of Lucky Stock Code on IPO. In Proceedings
of the 2nd International Conference on Business and Information Management (pp. 105-
109).
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REFERENCES
Books and Journals:
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