Business Decision making

This report explores the importance and procedure of decision making in business organizations, focusing on XYZ plc. It covers techniques used by managers, such as payback period and net present value, and discusses the role of financial and non-financial factors in the decision-making process.

Business Decision making
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Contents
Contents...........................................................................................................................................2
INTRODUCTION...........................................................................................................................5
TASK 1............................................................................................................................................5
Calculation of payback period.....................................................................................................5
Working out of Net Present Value...............................................................................................6
Financial factors...........................................................................................................................8
Non financial factors....................................................................................................................8
CONCLUSION................................................................................................................................8
REFRENCES...................................................................................................................................8
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INTRODUCTION
Business decision making is essential component for every business organization. Success of an
organization depends on the skills of decision taking of an manager. Thus this report is prepared
for identified the importance and procedure of decision making. For this purpose XYZ plc had
been selected. This organization is a branch of the hotel chain of Britain which provides high
quality of hospitality service to their customers. This report considers the techniques used by
mangers to take decision and role of financial and non financial factors in the process of decision
making.
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TASK 1
Payback period: It refers as the process of capital budgeting used for time requisite to get back
the funds exhausted in an outlay. In other words payback period is used to calculate the time
required for business organizations to reach their breakeven point of the project process. This
method of the process of decision making is useful for small entrepreneurs as they can easily
calculated the best alternative within a short time period (Nasif and Roslan, 2015).
Calculation of payback period
Software project A
Year Cash inflow in £ Cumulative cash inflow
1 28,000 28000
2 32,000 60000
3 35000 95000
4 55000 150000
5 78000 228000
Formula of payback period= Base year +primary outlay- collective cash inflow of base year /
future year cash inflow
3+100000-95000/55000= 3.90
Payback period for Laundrette Project
Year Cash inflow in £ Cumulative cash inflow
1 31000 31000
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2 38000 69000
3 43000 112000
4 64000 176000
5 89000 265000
PAYBACK PERIOD: 3+120000-112000/64000 = 3.125
Interpretation: Pay back period is calculated for identifying the time required for the project to
fulfil the initial cost. In the case of XYZ plc the value of pay back period of software project is
3.90 years and for project B, laundrette project it takes 3.12 years to cover up the project cost.
Higher time of pay back periods refers and lower profitability rate and the less time company
take to cover up their initial cost higher their rate of profitability increases. In this case both
projects able to fulfil initial cost within minimal time period.
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Working out of Net Present Value
Net presents value can be refers as the amount of differences of initial cost and the present value
of cash inflows. It is the reliable method of capital budgeting apply by business organizations to
take effective and accurate decision regarding their future (He, Wang and Liu, 2015).
For software project
Year Value of cash inflow Discount rate factor
11 %
Present value of net
cash flow
1 28,000 0.901 25228
2 32,000 0.812 25984
3 35000 0.731 25585
4 55000 0.659 36245
5 78000 0.593 46254
Total 159296
Net present value: current value of money inflow of software project – current value of original
outlay cost of software: 159296-100000: 59296
For Laundrette project
Year Value of cash inflow Discount rate factor Present value of net
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11 % cash flow
1 31000 0.901 27931
2 38000 0.812 30856
3 43000 0.731 31433
4 64000 0.659 42176
5 89000 0.593 47971
Total 180367
Net present value: Present value of cash inflow – present value of initial investment of
Laundrette project: 180367-120000: 60367
Interpretation: The difference of present value and initial cost of software project of XYZ plc
was 59296 and for laundrette project it was 60367. The value of present cash flow in both
cases is much higher than compare tot their cost increased in establishment of the project.
This represent that both projects are able to provides higher retune of cash inflows in future
time period. Thus manger plc should accept the decision of investing within the project.
Decision: From the calculation of payback period and net present value technique, manager of
XYZ will be alb to find that the organizations need lesser time and hey are able to generate
higher rate of cash inflow if they invest in the projects and stop outsourcing of these services
(Tschoppand Huefner, 2015).
Financial factors
Factors which is directly affect the procedure of decision making is known as financial factors.
These are the source of collection of monetary resource. Manager of XYZ plc bigger taking any
decision checks the availability of their balance and vale of assts ad working capital as all these
are essential to fulfil the day to day liability regarding running of new projects.
Capital balance: The balance avaliabe of an organization to run their business. Capital is made of
part of equity shares. These shares help in increases cash inflows of the organization, through
which manager able invest in new products.
Profits: Profits help in determining the future sustainability rate of the business organization.
Higher profits help in increasing the cash inflow.
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Income: Source of total revue from ruining business operations. Managers deducting all the
expense and taxes from the income earn in the financial year. It considerers financial factors
because manager only select those alternative through which they can generate higher income
Non financial factors
Factors which affect the decision making process in indirect way. Know n as non financial
factors. Manager of XYZ plc considers these factors because success of business depends on
how effectively manager utilised their non financial factors.
Human recourses: Skills human resource can easily adopt new project and give their 100 % in
business activities (Nabulsi, 2016).
Legal consideration: t is essential before selecting any project that investing in the project not
broke any ethical code of conducts.
Marketing strategies: Theses strategies in attracting of customers. It is most essential factor as
profits and sustainability depends on the level of customer’s affricating.
CONCLUSION
From the above analysis it can be analysis that manager of business organization use
capital budgeting techniques in their decision making process as it will help them to recognize
the time and future cash inflows value. As well as the also consider financial and financial factor
availably within their organization beg selecting any alternative for future in expansion of
business.
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REFRENCES
Books and journal
Nasif, M. S. and Roslan, R., 2015. Effect of Utilizing Different Building's Roof Material on
Rainwater Harvesting System’s Payback Period, Water and Energy Savings, and Carbon
Dioxide Emission Reduction. In Applied Mechanics and Materials (Vol. 802, pp. 593-
598). Trans Tech Publications Ltd.
He, Z., Wang, N. and Liu, R., 2015. The multi-mode capital-constrained net present value
problem. In Handbook on Project Management and Scheduling Vol. 1 (pp. 513-532).
Springer, Cham.
Tschopp, D. and Huefner, R .J., 2015. Comparing the evolution of CSR reporting to that of
financial reporting. Journal of Business Ethics, 127(3), pp.565-577.
Nabulsi, B. A., 2016. Organizational Culture Influence on Employee Participation in Decision
Making. International Journal in Management & Social Science, 4(2), pp.480-483.
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