Business Decision Making

This report explores the process of business decision making, focusing on financial and non-financial factors. It includes a case study of Genesis & Dreams Ltd, a construction company in the UK. Topics covered include NPV, payback period, and analysis of factors that aid decision making. Find study material and solved assignments on Desklib.

Business Decision-
Making

Table of Contents
INTRODUCTION ..........................................................................................................................1
MAIN BODY...................................................................................................................................1
Calculation of payback period and NPV.....................................................................................1
Analysis of financial and non-financial factors that aids decision making-................................3
CONCLUSION................................................................................................................................4
REFERENCES................................................................................................................................5

INTRODUCTION
Decision making is a vital part of business as it has to take several decisions in its day to
day working as well as for specific problems. If it is correctly made it can help a business grow
and prosper as well as it has the power to demolish the firm if not rightly taken (Ballesteros and
Kunreuther, 2018). In this report there is a description about a firm that is Genesis & Dreams Ltd
which is a construction company in the UK. This report covers topics such as NPV, payback
period, and financial & non-financial factors.
MAIN BODY
Calculation of payback period and NPV
Payback period- It is the time taken to recover the cost of the asset. This simply means
the time to reach break even point. It is preferable at lower side that is lower payback period will
result in higher profitability and vice-versa.
PROJECT A-
YEAR CFAT CUMULATIVE CFAT
1 18000 18000
2 16000 34000
3 19000 53000
4 22000 75000
5 37000 112000
Payback period= Lower year+ Unrecoverable cost at the start of the year/Cash flow
during the year
= 3+ 17000/22000
= 3+.77 = 3.77 (APPROX.)
PROJECT B-
YEAR CFAT CUMULATIVE CFAT
1 21000 21000
2 27000 48000
3 30000 78000
1

4 32000 110000
5 32000 142000
Payback period= Lower year+ Unrecoverable cost at the start of the year/Cash flow
during the year
= 3+ 6000/32000
= 3+.1875 = 3.1875 (APPROX.)
NPV- It simply is the difference between present value of inflow to present value of
outflow (Bateman and Wheeler, 2018). It shows the amount that will be received after deducting
the outflows.
PROJECT A-
YEAR CFAT PV PVIF
1 18000 0.877 15786
2 16000 0.769 12304
3 19000 0.675 12825
4 22000 0.592 13024
5 37000 0.519 19203
73142
NPV= PVIF-PVOF
= 73142-70000
= 3142
PROJECT B-
YEAR CFAT PV PVIF
1 21000 0.877 18417
2 27000 0.769 20763
3 30000 0.675 20250
4 32000 0.592 18944
5 32000 0.519 16608
2

94982
NPV= PVIF-PVOF
= 94982-84000
= 10982
Where, CFAT= Cash flow after tax
PV= Present value that is 14%
PVIF= Present value of inflow
PVOF= Present value of outflow
RECOMMENDATION- It is recommended from the above that in the payback period
of both the projects the variation is not much but there is high difference of return that can be
seen in NPV so it can be seen from that PROJECT B is profitable for the company.
Analysis of financial and non-financial factors that aids decision making-
Financial factors- Financial factors or it can be termed as internal factors which aid in
decision making are those which affects the decision of the firm that is related to it financially. It
can be the asset structure of the company, its size and nature, its liabilities, cost and the return
that it would give and the risk involved with it, experience of the firm in the related market, etc.
A business has to take these decisions accordingly so that it would add to its growth, prosperity,
and profitability rather than being a reason of its downfall (Hvastová, 2016). The main factors
are explained briefly below- Size of the firm- It affects the decision making of a company because decisions are taken
on the basis on its size if a company is large it will take its decisions accordingly and if a
firm is of small size it will decide its factors in accordance with it. Genesis and Dreams
Ltd is a construction company and has a vast area to be covered in its working so it is
very important for it to take decisions in accordance with it so that it could be helpful in
the working of it. Liabilities- They are very important aspect of any company as it is the driving force and
interprets the doing of a business. If they are large in number it can result in a firm being
too risky and vice versa (Jeble, Kumari and Patil, 2017). As Genesis and Dreams Ltd is a
construction company and has to take liability to meet its credit requirements but it
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should take decisions very carefully and must involve lot of research and analysis so that
liability should not become a burden which can have adverse consequences on the firm.
 Experience of the firm- It plays a vital role as many decisions can easily be taken if a
company is established for a long time. Due to this a firm knows cause and effect of
many things which can help it in the present as well as the future. Genesis and Dreams
Ltd is a construction company which is established since long with a good market share
in hand can use its experience as a plus point in its decision making as it can help to take
a lot of decisions on that behalf (Kashyap, 2018).
Non-financial factors- These are those factors which are not directly related to the
business but they does possess a important part in determined the well being of the firm. It can
be government rules and regulations, policies and procedures, interest rates, ease of doing
business, stability of the government, laws, etc. A firm must study all these factors so that they
would be beneficial for the company and increase in its return and profitability. Some important
non financial factors are explained below- Government laws- They are very important as it can be a deciding factor in operation and
non-operation of a business. Genesis and Dreams Ltd must follow all the laws and must
abide by that so it would be benefited by it. Interest rate- It is an integral part of as it can govern the profitability of the product and
services. Genesis and Dreams Ltd can do research and analysis about the rate of interest
and then decide accordingly about the things that has to be changed so that it could be
helpful for the firm (Nykänen, Järvenpää and Teittinen, 2016).
 Ease of doing business- Ease of entry and exit in the market and the subsidies provided
can be major aspect in it. Genesis and Dreams Ltd is well established and have a lot of
expertise knowledge so it can take decisions for it accordingly so that it can be benefited
by it.
CONCLUSION
From the above discussion it can be concluded that business decision making is a process
of taking decision about a normal day to day activity or a specific thing. Decision making
include two types of factors that are financial and non-financial. Financial factors includes major
part like size, nature, rate, etc. of a company. Non- financial includes government laws, rules and
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regulations, policy and procedures, stability aspect, etc. There are many techniques that can be
used in the above calculation and the used techniques are payback period and NPV.
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REFERENCES
Books and journals
Ballesteros, L. and Kunreuther, H., 2018. Organizational decision making under uncertainty
shocks (No. w24924). National Bureau of Economic Research.
Bateman, I. and Wheeler, B. W., 2018. Bringing Health and the Environment into Decision-
Making: The Natural Capital Approach.
Hvastová, J., 2016. Exploring Ethical Decision Making in Business Management. Quality-
Access to Success. 17(155).
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.
Kashyap, P., 2018. Machine Learning for Decision Makers: Cognitive Computing Fundamentals
for Better Decision Making. Apress.
Nykänen, E., Järvenpää, M. and Teittinen, H., 2016. Business intelligence in decision making in
Finnish enterprises. Nordic journal of business. 65.
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