Business Decision Making

This document discusses the importance of business decision making and its impact on the growth and success of an organization. It explores investment appraisal techniques such as Net Present Value and Payback Period. It also examines the financial and non-financial factors that influence business decisions. The document provides insights into the decision-making process and offers recommendations for making sound business decisions.

BUSINESS
DECISION MAKING

TABLE OF CONTENTS
INTRODUTION .............................................................................................................................3
TASK ..............................................................................................................................................3
Business Decision Making...........................................................................................................3
Financial and Non financial factors influencing business decisions...........................................5
CONCLUSION................................................................................................................................6
REFERENCES................................................................................................................................7

INTRODUTION
Business decision making have critical role to be performed by the managers and senior
executives. An organisation is required to have number of decisions on regular basis that define
the growth and direction of business. Executives and managers have to analyse the impact of
every decision that will be taken for the company with the use of different methods. Report will
reveal about the A&B plc which is proposing to make investments for restaurant and wants to
assess whether to invest in the dishwasher or in software project based on profitability.
TASK
Business Decision Making
Decision making refers to the process which includes identification of goals, having
relevant and the necessary information and to weigh alternatives to make sound decisions for the
entity. For success of the business, decision making could be said as most significant factor.
sound business decisions are based on the foundation of knowledge and experiences that leads
organisation to long term growth and prosperity. If business decisions are made over flawed or
incomplete information it could affect the over all operation of company significantly. It is
complex process for the managers to make decisions for the organisation that are most beneficial
from the various alternatives available to them (Kimmel, Weygandt and Kieso, 2018). Growth
and success of every company is dependent over quality of the decisions taken by management
and executives of the business. managers have to be updated about the recent trends, market
conditions and economic scenarios along with internal strengths and weaknesses of the
organisation.
Investment Appraisal Techniques
Companies are required to make number of financial decisions for increasing the capacity
or for expansion and growth of the organisation. The investment appraisals involved assessing
the viability of the different investments that company proposes to make for the business. They
enable company to identify profitability, returns on investments and time it will take to cover
costs. The techniques used in investment appraisals are mentioned below
Net Present Value
NPV is the most commonly used investment appraisal techniques by the management and
investors. NPV of projects are calculated by discounting the cash flows that will be generated
from project using the cost of capital rate and deducting it from initial costs of projects. If the
outcome is positive project is considered profitable.
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Computation of NPV
Project A
Year
Cash
inflows
PV
facto
r @
14%
Discoun
ted cash
inflows Year
Cash
inflows
PV
facto
r @
14%
Discount
ed cash
inflows
1 30000 0.877
26315.7
9 1 40000 0.877 35087.72
2 35000 0.769 26931 2 45000 0.769 34626
3 40000 0.675 26999 3 50000 0.675 33749
4 60000 0.592 35525 4 75000 0.592 44406
5 90000 0.519 46743 5 80000 0.519 41549
Total
discounted
cash inflow 162514
Total
discounted
cash
inflow 189418
Initial
investment 120000
Initial
investment 150000
NPV (Total
discounted
cash inflows
- initial
investment) 42514
NPV
(Total
discounted
cash
inflows -
initial
investmen
t) 39418
Payback period
This is another method used in the investment appraisal that measures the time taken by
investment to cover the cost of project. The method enables the management to assess the break
even of the project so that estimated about the profitability could be made (He, Wang and Akula,
2017). If the project has payback period higher or near to useful life of the project it is not
beneficial to be adopt such project.
Computatio
n of
Payback
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period
Project A
Year
Cash
inflows
Cumulative cash
inflows
Cash
inflows
Cumulative cash
inflows
1 30000 30000 40000 40000
2 35000 65000 45000 85000
3 40000 105000 50000 135000
4 60000 165000 75000 210000
5 90000 255000 80000 290000
Initial
investment 120000 150000
Payback
period 3 3
0.4 0.3
Payback
period
3 year and 5
month
3 years & 3
months
Recommendations
Npv and Payback period are the metrics which are used for measuring viability of the
investment techniques. NPV identifies whether the cash flow will be adequate for covering the
cost of the project or not. On the other payback is used for measuring time in which cost will be
recovered as higher payback period is not recommended.
It could be analysed from the above outcomes of investment appraisal techniques that
company should choose to buy dishwasher for the restaurants as NPV of the dishwasher is higher
as compared with NPV of Software project. This technique suggest project A which is
Dishwasher. On the other payback of project B is shorter by one month than project A. However,
evaluating the overall project it could be assessed that Project A with higher NPV should be
adopted as difference in payback periods is not significant.
Financial and Non financial factors influencing business decisions
Financial Factors
Liquidity
Liquidity of any organisation is the most critical factor when deciding about any project
or investments. Availability of funds highly influences the decisions to be taken about the
company. Firm investing even when cash flows are inadequate can cause company to face issues.
Profitability
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It is the basic objective of any business. the approach of managers is highly towards
increasing profitability and the decisions that affect the profitability or earning capacity are
avoided by the managers.
Risks
Managers have to identify the potential risks associated with investments or projects to
ensure that measures are taken in advance for reducing the effects of risks to business.
Non Financial Factors
Economic Environment
Economic condition of the regions in which company operates have significant influence
over working of organisation. Growing economy helps company to grow along achieving the
goals and objectives.
Management
Managers are the key individuals that manage the operations of the company effectively.
If the management is not effective and motivated the workforce will not be able to accomplish
organisational objectives (Metcalf, Askay and Rosenberg, 2019).
Workforce
Human capital for every business is the most important factor that enable the company to
achieve its goals and objectives. Employees should be allocated roles and responsibilities based
on their skills and knowledge.
CONCLUSION
It could be summarised that decision making is the most important task and function of the
managers. The decisions of the business are taken after analysing all the factors that could
influence the decisions and health and operations of the organisation. Managers use different
tools and techniques for making choices between different options available for the business.
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REFERENCES
Books and Journals
Kimmel, P.D., Weygandt, J.J. and Kieso, D.E., 2018. Financial accounting: Tools for business
decision making. John Wiley & Sons.
He, W., Wang, F.K. and Akula, V., 2017. Managing extracted knowledge from big social media
data for business decision making. Journal of Knowledge Management.
Metcalf, L., Askay, D.A. and Rosenberg, L.B., 2019. Keeping humans in the loop: pooling
knowledge through artificial swarm intelligence to improve business decision
making. California Management Review. 61(4). pp.84-109.
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