Decision Making and Problem Solving Presentation

This presentation discusses decision making and problem solving techniques for a multinational company based in Vietnam. It includes SWOT analysis, 5 force analysis, PESTLE analysis, and financial analysis for three investment options. The presentation is relevant for business and management courses in universities and colleges.

Decision Making
and Problem
Solving
Presentation
Decision Making and Problem Solving 1

Decision Making and Problem
Solving
GROUP MEMBERS
Decision Making and Problem Solving 2

Presentation Objectives
As the managers of a large, multinational company based in
Vietnam with its outlets in Europe and Australia have to
choose the best investment project among the available
options.
Decision Making and Problem Solving 3

Investment Options
Option 1: Acquire a new, modern production
method for both factories
Option 2: Establishing retail outlets in
America.
Option 3: Acquire an existing retail outlet in
Africa
Decision Making and Problem Solving 4

Company Profile
• Company Name: KEPO
• Location: Vietnam
Outlets
 Europe
 Australia
• Company Brand: KEP
• Product Prices Range: USD 30-1000
• Budget Investment: USD 1 million
Decision Making and Problem Solving 5

SWOT ANALYSIS
SWOT Analysis is an important technique
that is applied when evaluating the
internal strengths and weaknesses that
would face a new business as well as
establishing the opportunities available to
the business as the Threats likely to be
faced
Decision Making and Problem Solving 6

SWOT-Option 1
Acquire a new, modern production method for both
factoriesSTRENGTH
Improve capabilities: New production methods
will be based no technology which improves
production efficiency
Enable employees to work faster
Increased productivity
More competitive advantage: New production
methods enhance efficiency, quality and customer
satisfaction.
Improved safety: New machinery reduces the
risks and threats on employees’ safety.
WEAKNESS
Expensive: The cost of acquiring new
production machines is too costly for the company.
Lack of expertise: The current employees
cannot operate the new machines and production
techniques.
High maintenance cost.
OPPORTUNITIES
New Markets: Many people are embracing
products from the company. New production
techniques will help to meet the emerging
demands
Innovation: New production machines will
promote creativity at the company
Reduced cost: The investment would lead to
reduced production costs hence increased
productivity
THREATS
Taxation: Increased taxation on new machines
and manufacturing companies
Negative brand image: Laying off employees is
to attract protests and conflicts from trade unions.
Uncertain sales projections
Decision Making and Problem Solving 7

SWOT-Option 2
Establishing retail outlets in America
STRENGTH
•Consistent quality: The products are easily
recognised in the American market due to their
consistency in quality.
•Experience: The Company has vast experience in
the electronic manufacturing industry.
•Good reputation in the market
•Cost and technological advantage
•Strong ethical values globally.
WEAKNESS
•Lack of adequate funding: The Company will
have to borrow $ 1000000 to fund the project.
•No reputation: KEPO has not yet established
itself in the American market
•Marketing deficiencies in the new market.
OPPORTUNITIES
•Growing market: The American market is huge
and expanding.
•New technological advantage
•Availability of new market
•Lack of aggressive competition in the
market.
THREATS
•New competition: It is easier for new
competition to enter the market which pose
increased competition.
•Demographic changes are a challenge in the
new market
•Adverse government and taxation policies
•Possible economic slowdowns
Decision Making and Problem Solving 8

SWOT-Option 3
Acquire an existing retail outlet in Africa
STRENGTH
•Existing brand image: Customers can easily
identify with the outlet to be acquired.
•Huge number of loyal customers
•No rental costs: The premises will be owned by
the business.
•Highly motivated employees
•Effective marketing techniques.
•Low cost strategy
WEAKNESS
•Financial constraints: The company will have to
borrow from financial institutions to meet the
acquisition cost.
•High competition: There is high competition in
the market which require diversity and innovation.
•Overreliance on imported raw materials
•High labour cost
OPPORTUNITIES
•New brands: The company will use its new and
unique brands to increase its market share.
•Increased innovation: The company enjoy
creativity that easily match customer
expectations.
•Low taxation: Increased profitability
opportunities
THREATS
•Increasing customers demands cause stiff rival in
the market.
•Government policies: Strict policies which are
hard to adhere to.
•Low differentiation: Customers cannot easily
recognise KEPO products because of high level of
similarityDecision Making and Problem Solving 9

5 Force
Analysis
5 Force Analysis is a market analysis
tool that was developed by Michael
Porter in 1979. The analytical tool
evaluates attractiveness and
competitive intensity of a market
based on forces like;
•Threats of new entry.
•Competitive Rivalry
•Supplier Bargaining Power
•Buyers Bargaining Power
•Threat of Substitution
Decision Making and Problem Solving 10

5 Force Analysis
Analysis Option 1 Option 2 Option 3
Buyers bargaining
power
 There are many brands with low level
of differentiation in the market. Cost
is the main competitive factor in the
market. The switching cost is also
low.
 Competition Level: High
 Buyers can easily switch from one
brand/ product to another.
 Competition Level: Highest
 Buyers can easily switch from one
brand/ product to another. However,
quality and price are the main factors
considered by customers
 Competition Level: Medium
Suppliers bargaining
power
 There are few suppliers in the market
who provide raw materials to the
many manufacturers like KEPO.
 Competition level: High
 There are many suppliers in the
market.
 Competition level: Low
 There are moderate number of
suppliers in the market.
 Competition level: Medium
Competition Rivalry  There are over 30 competitors in the
industry. The key players are PIKO,
Levtec, and Lectlink.
 Competition Level: High
 There are over 100 competitors in the
industry. Competition Level: Highest
 There are few competitors in the
industry. Competition Level: Low
Threats of substitute  The number of companies offering
substitute washing and electronic
equipment have increased over
years.
 Competition level: High
 There are many companies offering
substitute goods
 Competition level: Highest
 There are many companies offering
substitute goods
 Competition level: Low
Threats of new
entrants
 The market has a high cost of
entrant.
 Competition level: Low
 The market has a low cost of entrant.
 Competition level: High
 The market has a low cost of entrant.
 Competition level: High
Decision Making and Problem Solving 11

PESTLE
ANALYSIS
• PESTLE analysis is a tool/ framework used to
evaluate factors associated with the macro-
environment and how they impact the business.
• PESTLE analysis is used to identity the SWOT
factors for a business.
• PESTLE analysis factors include;
 Political
 Economic
 Social
 Legal
 Environmental
 Technological
Decision Making and Problem Solving 12

PESTLE ANALYSIS
Analysis Option 1 Option 2 Option 3
Political  Relatively Stable  Stable  Relatively Stable
Economic  GDP =6.81% (2017)
 Purchasing Per Parity= USD 3,207.8
 Inflation rate =3.52%
 CPI=3.53%
 Unemployment Rate= 4.50%
 GDP 31.28% (2017)
 Purchasing Per Parity= USD --
 Inflation rate =1.7%
 CPI=2.9%
 Unemployment Rate= 4.1%
 GDP =0.61% (2017)
 Purchasing Per Parity= USD 5338.45
 Inflation rate =18.7%
 CPI= 12.5%
 Unemployment Rate=18.80%
Social  Population growth rate=1.96%
 Max Weekly Hours= 48
 Sex Ratio=1.12 male/ 1 Female
 Population growth rate= 0.71%
 Max Weekly Hours= 35
 Sex Ratio=0.98 male/ 1 Female
 Population growth rate= 2.63%
 Max Weekly Hours= 40
 Sex Ratio=1.02 male/ 1 Female
Technology Relatively advanced stage Advanced Stage Developing Stage
Legal Stricter legal policies on investment Stricter legal policies on investment Investment friendly legal framework
Environmental  Consumers are environmental
conscious and buy environmentally
friendly products
 High level of environmental activism
 Consumers are environmental
conscious and buy environmentally
friendly products
 High level of environmental activism
 Although consumers are
environmentally conscious, buying is
based on price.
 Moderate level of environmental
activism.
Decision Making and Problem Solving 13

Financial
Analysis
• Financial analysis is an
evaluation technique used to
investigate the financial
aspects of a business in terms
of their viability, affordability
and liquidity.
• Common financial analysis
tools include;
 Payback Method
 Net Present Value (NPV)
 Internal Rate of Return (IRR)
Decision Making and Problem Solving 14

Financial Analysis- Option 1
Initial Cash Outflow
Option 1 will require USD 935,000 to invest in as shown below
Investment Items Cost (USD) Ratio
Cost of Machines (2) 600,000 64%
Spare parts 70,000 7.49%
Repair per annum 53,000 5.67%
Insurance 69,000 7.38%
Operators Salaries per annum 100,000 10.69%
Other costs 43,000 4.60%
935,000 100%
Projected sales and Profitability
Items 1st Year 2nd Year 3rd Year 4th Year 5th Year
Production &
Sales Qty 95,000 110000 130000 145000 170000
Production &
Sales Amt
(mil) 3.5 3.8 4.3 4.9 5.5
Operating
Profit 340,000 450,000 510,000 590,000 740,000
Decision Making and Problem Solving 15

Financial Analysis- Option 2
Initial Cash Outflow
Option 1 will require USD 800,000 to invest in as
shown below
Investment Items Cost (USD) Ratio
Cost of Rent per annum 60,000 8%
Renovation 100,000 13.00%
Inventory 530,000 5.67%
Insurance 50,000 66.25%
Legal Fees 25,000 3.12%
Other costs 35,000 4.38%
800,000 100%
Projected sales and Profitability
Items 1st Year 2nd Year 3rd Year 4th Year 5th Year
Production &
Sales Qty 85,000 90000 110000 155000 180000
Production &
Sales Amt
(mil) 2.9 3.2 3.1 4.1 5.9
Operating
Profit 310,000 370,000 450,000 510,000 840,000
Decision Making and Problem Solving 16

Financial Analysis- Option 3
Initial Cash Outflow
Option 1 will require USD 940,000 to invest in as
shown below
Investment Items Cost (USD) Ratio
Cost of Rent per annum 0 0%
Renovation 130,000 13.83%
Inventory 530,000 56.38%
Advertisement & marketing 100,000 10.64%
Insurance 90,000 9.57%
Legal Fees 30,000 3.19%
Other costs 60,000 6.38%
940,000 100%
Projected sales and
Profitability
Items 1st Year 2nd Year 3rd Year 4th Year 5th Year
Production &
Sales Qty 60,000 75,000 120,000 175,000 200,000
Production &
Sales Amt
(mil) 1.7 2.4 3.2 5.3 6.1
Operating
Profit 190,000 230,000 450,000 650,000 910,000
Decision Making and Problem Solving 17

Financial Analysis Tool
• Payback Method
The payback method is used to calculate the time it would take an
investment to recover the initial cost outlay (English, 2011, p. 23).
• Net Present Value (NPV)
Net Present Value is used to determine the profitability of an investment by
subtracting initial cash outflow from the projected present value of cash
inflows during a given period (Brigham & Ehrhardt, 2014, p. 41).
• Internal Rate of Return (IRR)
Internal Rate of Return (IRR) method is used to evaluate how attractive an
investment is. IRR refers to an interest rate when the NPV of an
investment is Zero (Kapil, 2013, p. 78).
Decision Making and Problem Solving 18

Financial Analysis Tool-
Summary
Financial Analysis Option 1 Option 2 Option 3
Payback Method 2.284 years 2.267 Years 3.108 years
Net Present Value (NPV) 991280 995,330 769,700
Internal Rate of Return (IRR) 40. 80% 43.91% 30.82%
Decision Making and Problem Solving 19

FINANCIAL ANALYSIS TOOLS-
RESULST
• After evaluating the three investment options using
Financial analysis tools, Option 2 is ranked highest
followed by option 1 while option 3 comes last.
• Option 2 has the shortest Payback period, highest NPV
and IRR compared to other options.
Decision Making and Problem Solving 20

Business
Investment
Analysis Score
Matrix
SWOT Analysis, 5 Force Analysis,
PESTLE, Financial analysis are
analysed
Decision Making and Problem Solving 21

Business Investment Analysis
Score Matrix
SWOT Option 1 Option 2 Option 3 PESTLE Option 1 Option 2 Option 3
Strength 3.4 4.1 3.7 Political 3 5 3
Weakness -3.1 -2.5 -2 Economic 3 4 3
Opportunity 2.7 4.3 4.4 Social 2 5 5
Threat -3.4 -0.3 -1.5 Technology 3 5 4
Legal 2 5 3
Environments 4 4 2
5 Forces
Buyers bargaining power 2 4 3 Financial Option 1 Option 2 Option 3
Supplier bargaining power 1 5 3 Payback 1 3 2
Competition Rivalry 3 4 3 NPV 1 3 2
Threat of Substitute 1 5 5 IRR 1 3 2
Threat of new entrants 2 5 4
Decision Making and Problem Solving 22

Business Investment Analysis
Summary
• Option 2 has the highest Score
• Option 1 Comes second
• Option 3 Comes third
• The Company should therefore invest in Option 2
Decision Making and Problem Solving 23

References List
• Brigham, E. F. & Ehrhardt, M. C., 2014. Financial management. Mason, OH: South-Western
Cengage Learning.
• Brigham, E. F., 2016. Financial Management. New York: DIANE Publishing.
• Brigham, E. F. & Ehrhardt, M. C., 2014. Financial management. Mason, OH: South-Western
Cengage Learning.
• Buckley, P. J., 2018. International Business. Chicago: Oxford University Press.
• English, P., 2011. Capital Budgeting Valuation: Financial Analysis for Today's Investment
Projects. 1 ed. New York: John Wiley & Sons.
• Frankl, M., 2015. Business Decision-Making: Streamlining the Process for More Effective
Results. New York: Business Expert Press.
• Higson, A., 2003. Corporate Financial Reporting: Theory and Practice. 1 ed. New Jersey: SAGE.
Decision Making and Problem Solving 24

References List
• Kapil, S., 2013. Financial Management. Pearson Education India: New Delhi.
• Kaplan, D., 2012. Introduction To Financial Statement Analysis. New Delhi: The Kaplan
Group.
• Kimmel, P. D., Weygandt, J. J. & Kieso, D. E., 2010. Financial Accounting: Tools for Business
Decision Making. New York: John Wiley & Sons.
• Maynard, J., 2017. Financial Accounting, Reporting, and Analysis. Chicago: Oxford University
Press.
• Mazzucato, M., 2002. Strategy for Business. 1 ed. London: SAGE Publications Ltd .
• Niven, D., 2011. asic’s focus on financial reporting. EBSCOhost, 82(2), pp. 30-66.
• Pijper, T., 2016. Creative Accounting: The effectiveness of financial reporting in the UK.
London: Springer.
• Pike, R. & Neale, B., 2006. Corporate Finance and Investment: Decisions & Strategies.
reprint ed. New York: Financial Times Prentice Hall.
Decision Making and Problem Solving 25

References List
• Robertson, J., 2016. Financial Decision Making. New York: Wiley.
• Tracy, A., 2012. Ratio Analysis Fundamentals: How 17 Financial
Ratios Can Allow You to Analyse Any Business on the Planet.
London, UK: Bidi Capital Pty Ltd.
• Weygandt, J. J., Kimmel, P. D. & Kieso, D. E., 2015. Financial &
Managerial Accounting. New York: John Wiley & Sons.
• Zhu, N., 2017. Financial Decision Making: Understanding Chinese
Investment Behavior. London: Taylor & Francis.
Decision Making and Problem Solving 26