Business Decision Making

This report discusses the process of decision making in business and its impact on operations. It explores the computation of payback period and calculation of NPV in different projects. The advantages and disadvantages of these investment techniques are also discussed. The report also analyzes the financial and non-financial factors influencing decision making. The conclusion suggests investing in Project A.

Business Decision Making

Contents
INTRODUCTION...........................................................................................................................................3
MAIN BODY.................................................................................................................................................3
1. Computation of payback period:..........................................................................................................3
2. Calculation of NPV in project A and B:..............................................................................................4
3. Analysis...............................................................................................................................................5
CONCLUSION...............................................................................................................................................7
REFERENCES................................................................................................................................................8

INTRODUCTION
Decisions are taken at all executive systems to support the achievement of the overall or
company goals. Furthermore, the judgments constitute one of the main operating principles
embraced and enforced by each company in order to ensure maximum development (Arnott,
Lizama and Song, 2017). This report is based on the A&B plc restaurant chain, established in
UK which also operates their activities in Europe. Due to lack of resources, company wants to
outsource dishwashing and software project. In this report two types of investments techniques
such as net present value and payback period are applied with their advantage and disadvantage.
As per the result, company will take decision for the investment and identify the financial and
non financial factors.
MAIN BODY
1. Computation of payback period:
Project A – Dishwashing Project
Year Net cash flow Cumulative Cash Flow
1 30000 30000
2 35000 65000
3 40000 105000
4 60000 165000
5 90000 255000
Payback period = 3 + (15000 / 60000 * 12)
= 3 + 3 month
Project B –Software Project
Year Net cash flow Cumulative Cash Flow

1 40000 40000
2 45000 85000
3 50000 135000
4 75000 210000
5 80000 290000
Payback period = 3 + (15000 / 75000 * 12)
= 3 + 2.4 month
As per the above computation of the payback period, it was calculated that the payback period
for the Dishwashing Project is 3 years and 3 months, whereas the payback period for the
Software Project is 3 + 2.4 months, which indicates that the Software Project will receive
expenditure in a brief amount of time as compared to the Dishwashing Project.
2. Calculation of NPV in project A and B:
Year
Project
A PV Factor DCF
0
-
12000
0 1
-
12000
0
1 30000
0.8771929
8 26310
2 35000
0.7694675
3 26915
3 40000
0.6749715
2 27000
4 60000 0.5920802 35520

8
5 90000
0.5193686
6 46710
42455
Year
Project
B PV Factor DCF
0
-
15000
0 1
-
15000
0
1 40000
0.8771929
8 35080
2 45000
0.7694675
3 34605
3 50000
0.6749715
2 33750
4 75000
0.5920802
8 44400
5 80000
0.5193686
6 41520
39355
As calculated in the section above, Project: A's NPV is 42455 while Project B's NPV is
39355 on the other hand. Increasing NPV estimates suggest that the project will be more
sustainable as the current-value of the proposal's projected cash flows is higher. So Project-A,
that is to say, for organization A&B plc, dishwashing project will be more feasible because the
NPV of this plan is better than Project B.

3. Analysis
Payback period:Payback approach in making decisions on the overall budget in
comparison to other measurement methods used in corporate decision making on capital
budgeting. The payback period is described as the quantity of time needed to receive the money
from services in a venture. The payback period approach of financial calculation is used to
measure productivity gains and to determine the profit every year from the initiation of the
campaign until another cumulative profits are equivalent to the price of the expenditure after
which point the expenditure is considered to be have been repaid in full and also the time needed
to receive this return on investment is called the payback period(Garcia and et.al, 2016).
Advantage:
 It is commonly used and quickly grasped.
 It supports major early cash flow generating infrastructure improvements.
 It helps the financial advisor to control the risk by calculating how long it takes to receive
the money, although it does not explicitly discuss the risk.
 It quickly solves the problem of financial decisions.
 Facility of use and understanding allows for the devolution of the decision on capital
budgeting that increases the probability that only important things can meet the latest
figure.
 This provides a built-in danger and ambiguity precaution in that the sooner the payback
the smaller the danger(Istrat and Lalić, 2017).
Disadvantage:
 The payback technique's main drawbacks are that it lacks cash flows just after payback
period and does not accurately calculate the opportunity costs.
 The overall appropriate payback period (PP) should be selected in a more right manner to
help minimize those shortcomings.
 It excludes any advantages that arise after the time of payback i.e. it does not calculate
overall revenue. If additional outlay is made it difficult to differentiate between
enterprises of various sizes quantities greatly diverge.

 It was over-emphasizes productivity in the short term. The average payback periods are
reduced by delaying devalued plant substitution and equipment (Jeble, Kumari and Patil,
2017).
Net Present value:The Net Present Value is measured as the change here between current value
of the expense capital flows and the money outflows total value. In other terms, the present
values value of the benefits, typically measured as it is from the point of disclosure expenditure,
is the total value of the operating expenses and deindustrialization of the task versus the cost of
upfront outlay.
Advantage:The benefits of net present value have included assumption that this really
recognizes the cost value of the output and allows the top operations in making informed
decisions, while the drawbacks of nominal value provide the reality that this does not understand
the associated fees and should not be used by the organization to compare the various scales of
ventures. NPV approach helps businesses to take decisions. This not only aims to assess
initiatives of the same scale, but it also helps determine how a specific venture is making huge
profits or losing money.
Disadvantage: NPV's entire equation relies on taking into account potential investment returns
to their current value using the necessary return rate. There's many, nevertheless, no regulations
includes the interpretation of this amount. This percentage value is given to corporations'
judgment, but there might be times where the NPV was incorrect due to an incorrect return on
investment.
Financial and non financial factors
Financial factors are variables that, compared to non-financial elements, can be evaluated
reliably and easily recognized. Large economic factors, in terms of value, are the company's
balance sheet margins, gross profit, net profit, current ratio, debt to equity ratio and so forth other
specific metrics. Such as, if company debt equity ratio is down so it direct impact on the
investment amount and stakeholders change the decision in regard of investments. Furthermore,
non-financial factors are in fact highly insoluble, and therefore affect management decisions.
Such as, employee morale because all the staff members are not easily accept the changes o it
direct impact on the stakeholder decision. Examination of non-financial factors together with

economic position is very necessary for business in aims to enhance the quality of judgment
(Saldaña, Sylvie and McGregor, 2016).
The cumulative evaluation shows that Project A will be more achievable as the result of the NPV
approach is more preferred because of the cash-flow current-value. So Project A could be more
realistic then Project B.
CONCLUSION
As per the above business report it has been concluded that decision making process is
internal part of business that direct impact on the corporation operations in direct manner and
create different activities.After the application of both capitals investing method it is analyzed
that invest in project A.

REFERENCES
Books and Journal
Arnott, D., Lizama, F. and Song, Y., 2017. Patterns of business intelligence systems use in
organizations. Decision Support Systems. 97. pp.58-68.
Garcia, S. and et.al, 2016. Corporate sustainability management: a proposed multi-criteria model
to support balanced decision-making. Journal of Cleaner Production. 136. pp.181-196.
Istrat, V. and Lalić, N., 2017. Association rules as a decision making model in the textile
industry. Fibres& Textiles in Eastern Europe.
Jeble, S., Kumari, S. and Patil, Y., 2017. Role of big data in decision making. Operations and
Supply Chain Management: An International Journal. 11(1). pp.36-44.
Saldaña, M., Sylvie, G. and McGregor, S.C., 2016. Journalism–business tension in Swedish
newsroom decision making. Journal of Media Ethics. 31(2). pp.100-115.