Business Decision Making

This report discusses the importance of business decision making in managerial activities. It focuses on a case study of XYZ plc, a UK-based hospitality services provider. The report covers the calculation of payback period and net present value for XYZ projects. It also explores the financial and non-financial factors that influence decision making. The report concludes with the final decision and the impact of various factors on the success of the organization.

BUSINESS DECISION
MAKING
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Contents
Contents...........................................................................................................................................2
INTRODUCTION...........................................................................................................................4
TASK 1............................................................................................................................................4
Calculation of payback period for XYZ plc projects...................................................................4
Calculation of NPV for XYZ projects.........................................................................................4
Final decision...............................................................................................................................4
Financial factors...........................................................................................................................4
Non financial factors....................................................................................................................4
CONCLUSION................................................................................................................................4
REFRENCES...................................................................................................................................4
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INTRODUCTION
Business decision making is a part of managerial activities which used by every business
organization. Manager takes decision for future growth and expansion of business entities. This
report is prepared on the basis of solving case study of XYZ plc which is situated in UK and
provides hospitality services to their reliable clients. In this report use of payback period and net
present value method is used for determining to solve the problem of the organization. This
report also contains use of financial and non financial factors during taken business decision.
TASK 1
Calculation of payback period for XYZ plc projects
Payback period is a time period which an alternative takes to recover the origin cost inured
during the establishment of the project. Higher pay back period show that project takes more
time end cash inflow activities are not in a high range (Cooper, 2017).
Benefits of payback period
It is one of the most easy method of capital budgeting.
Manager can easily recognize within short time period which alternative s more beneficial.
Payback period is used mainly for small business enterprises.
Software project A
Year Cash inflow in £ Cumulative cash inflow
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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
2 38000 69000
3 43000 112000
4 64000 176000
5 89000 265000
PAYBACK PERIOD: 3+120000-112000/64000 = 3.125
Interpretation: The payback period of software project is 3.19 years and project b is 3.125 years.
Both project cover up initial cost within 4 years.
Calculation of NPV for XYZ projects
Net present value is the value of present cash inflow deducted from initial investment. Hit is
most reliable method of capital budgeting used by large business organizations. Higher net
present value represents the higher rate of profitably of project. Thus mangers select those
alternative though which they can easily able to incurred high cash rate f cash inflows.
Benefits:
It provides accurate result and it is more reliable for decision making process.’
Net present value considered time value during the process of decision making.
For software project
Year Value of cash inflow Discount rate factor
11 %
Present value of net
cash flow
1 28,000 0.901 25228
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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
11 %
Present value of net
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 net present value of software project is 59296 and the value of difference
laundrette project is 60367. Both projects represent higher present value amount then cash
outflow.
Final decision
From the calculation of pay back period and net present value it can be easy identified that if
XYZ plc invest in software and la project then they can able to cover up cost within 4 years and
the present value is also higher then initial cash out flow thus manager should accept the
proposal of investing in projects rather than oust souring of services (Yau, 2015).
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Financial factors
Financial factors are elements which are related with cash inflow and out flow activities. Theses
factors affect the decision as manger of XYZ plc take decision on the basis of recognizing their
investment capital, and sources of finance:
Income: Gross revenue generated from business activities. Manager only decide to select the
alternatives when it gives higher income.
Working capital: This is a part of capita which used to pay day today liabilties. Manger of XYZ
plc decided to select the alternative if the working capital ratio is not higher.
Profit: This factor is essential for organization as profitability rate decide the future exists of
business organization.
Non financial factors
Non financial factors can be defined as those elements which indirectly affect the efficiency rate
of working of business organization. These factors are used for completion of target proposal. If
manger does not consider them then they are not able to alive the goal of business organization.
Skills of human resource: Success of an alternative depends on how effectively their workforce
work for completion of the project. If they are motivated then XYZ can able to grenade higher
cash inflows and if they are not interested then they can archived their desired goal.
Technology: It is also affect the decision making process, managers choose those alternative in
which not highly advance technology has been used because their workforce is not able to
understand how to use advance technology software within the business operations.
Marketing strategies: These are also an Estela no n finical factor, customers get attracted by
organizations marketing strategies and good services thus manger of XYZ plc need to take
decision on the basic of considering marketing strategies (Nabulsi, 2016).
CONCLUSION
From this report it can determine that managers need to use capital budgeting methods to take
effective decision regarding their future, through which they can able to generate future gain.
Business decision making is essential art of managerial activities and various factor effect the
success of business which includes financial and non financial factors. Manager takes their
decision n the basis of analysis the positive and negative effect of this factor within the
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organization. As these factors affect shareholders expectations and able o fulfil them in effective
manner.
REFRENCES
Books and journal
Cooper, P., 2017. Cognitive active cyber defense: finding value through hacking human
nature. Journal of Law & Cyber Warfare, 5(2), pp.57-172.
Yau, O. H., 2015. Consumer Rights: The Perception of Business Managers in Hong Kong.
In Proceedings of the 1987 Academy of Marketing Science (AMS) Annual Conference (pp. 146-
150). Springer, Cham.
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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