Business Decision Making

This study focuses on the key components of business decision making, specifically in the context of A&B plc's case study. It covers the computation of payback period and calculation of NPV in project A and B. The analysis includes the role of financial and non-financial factors in decision making.

Business Decision
Making

Table of 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
Business Decision Making is the major and important function of the organisation as
decision making plays a vital role in business . Decision Making means taking best option or
decision among the various alternatives available to achieve the target effectively as well as
efficiently. Decision making refers to choose best alternative after analysing , sound decision
making is consider as primary function (Tseng, Chiu and Liang, 2018). The study-assessment
outlines the key business decision-making components focused on A&B plc 's realistic case
study. The business is the restaurant chain in the UK and provides services such as dishwashing
and software. Study includes detailed review of NPV, payback time, together with the role of
financial and non-financial considerations in decision taking.
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
2. Calculation of NPV in project A and B:
Formula: Net Present Value = Cash flow / (1+i) t - initial investment
Project A – Dishwashing Project
Year Cash flows PVF @ 14%
PV of Cash Flows
@ 14%
0 -120000 1 -120000
1 30000 0.8771929825 26315.7894736842
2 35000 0.7694675285 26931.3634964604
3 40000 0.6749715162 26998.8606480806
4 60000 0.5920802774 35524.8166422114
5 90000 0.5193686644 46743.1797923834
NPV 42514.0100528201
Project B –Software Project
Year Cash Flows PVF @ 14%
PV of Cash Flows
@ 14%
0 -150000 1 -150000

1 40000 0.8771929825 35087.7192982456
2 45000 0.7694675285 34626.0387811634
3 50000 0.6749715162 33748.5758101008
4 75000 0.5920802774 44406.0208027642
5 80000 0.5193686644 41549.4931487852
NPV 39417.8478410593

3. Analysis
NPV:
This approach is assess the actual present-value of all the expected cash-flows to
determine the viability of project. In it a specific rate is applied to measure the present-value of
cash-flows. If aggregate present-value of cash-in-flows of a project are more than present-value
of cash-out flows than such project is considered as viable (Akinbogun, Binuyo and Akinbogun,
2017).
The principal advantage of this approach is that under it cash-flows are discounted at
specific rate(cost of capital) to assess actual present value of all cash-flows. A further advantage
of such a method is that this method is both prompt and straightforward. However, there's some
downside to this technique, as this is useful only for contrasting project with comparable cash-
flows and same life cycle. Moreover discounting rate is generally taken on assumption basis
which affects decision-making based on this approach.
As measured in above part, Project: A's NPV is 42514.010 whereas on other side NPV of
Project B is 39417.85. Higher amount of NPV shows that project would be more viable as
present-value of expected cash-flows of project is higher. Thus, Project-A i.e. Dishwashing
Project would be more viable for company A&B plc since this project's NPV is higher then
Project B.
Payback Period:
As pay back period may be defined as actual length of time taken to recover aggregate
costs or investments made in a specific project. It help the analyst to make an accurate
judgement of which capital investment they should make. The project with least number of years
usually is selected , as it helps to measure the Investment risk. It is an evaluation activity. Short
payback period improve the efficiency and liquidity. The advantage of payback period is it is
easy to calculate and also easy to understand as it involves less risk if involved short term period
(Bader, Al-Nawaiseh and Nawaiseh, 2018).
The key significant advantage of such approach is that this provides a rapid analysis of
the project 's feasibility in consideration of how longer it'll take to recover the initial capital cost
of the project. This is also a simplistic task to evaluate a project's payback period.
The big downside of the payment system is that it does not take into account the existing
value element of the project. A successful contrast of two same and equal life cycles. This

approach focuses solely on time and excludes certain considerations that usually influence
decision-making.
From above computation of Payback period this has been analysed that payback period
of Dishwashing Project is 3 years and 3 months while payback period of Software Project is 3 +
2.4 month which shows that Software Project will retrieve investment within a shorter period as
compere to Dish-washing Project.
Aggregate analysis reveals that Project A would be more feasible as the product of the
NPV method is more favored owing to taking into account present-value of cash-flows.
Therefore, Project A is perhaps more feasible than Project B.
Financial and non-financial factors and their implications on decision making:
Decision-making is by far the most responsive and analytical method in actual practice
that relies on a broader variety of factors and is often affected by directly or indirectly forms of
doing so. These variables are largely categorized as both financial and non-financial factors.
Financial influences are variables that can be quantified accurately and readily understood in
contrast with non - financial aspects (Almansour, 2019). In terms of investment, significant
financial variables are the profit margin of the company, operating profit, net profit, current
ratio, debt equity ratio and so on other various indicators. These variables have an excellent and
mostly direct effect on the business of the company. Such considerations must be regarded by
management staff to increase the creditworthiness and validity of the decisions. Such
considerations also serve as metrics for executives to figure out important market problems for
decision taking. These considerations can include a fast overview of the overall output of
companies.
In addition, non-financial variables are non-quantifiable in essence, which therefore
influence management decisions. In order to improve the consistency of the decisions, analysis
of non - financial along with financial factors is very important for industry. Non-financial
considerations usually contribute to the external market climate of the company, such as the pace
of economic growth, policy measures, the implementation of new market regulations and rules,
interest rate adjustments etc. Such variables remain beyond executives' influence, and the effects
of such influences on company decision-making is usually inevitable, yet executives will take all
such considerations into account in order to take successful decisions to prevent potential

complications. Based on context, scale of company and related issues, the impact of these
variables can be longer-term or shorter-run (Ahmed and Manab, 2016).
CONCLUSION
From the above study, this has been concluded that decision-making process within a
corporation is an important and worthwhile process that allows management to achieve business
objectives. In the sense of this process , managers analyse every move to reach a conclusive
decision. Furthermore, as discussed above; there are wide variety of methods that assist and
direct decision-making by management.

REFERENCES
Books and Journals:
Tseng, M.L., Chiu, A.S. and Liang, D., 2018. Sustainable consumption and production in
business decision-making models.
Akinbogun, S.P., Binuyo, O.P. and Akinbogun, O.T., 2017. A Comparison of Monte Carlo
Simulation and Discounted Cash Flow Investment Appraisal Techniques Using an
Office Building in Akure, Nigeria. Nigerian Journal of Environmental Sciences and
Technology (NIJEST) Vol, 1(2), pp.299-308.
Bader, A., Al-Nawaiseh, H.N. and Nawaiseh, M.E., 2018. Capital Investment Appraisal
Practices of Jordan Industrial Companies: A Survey of Current Usage. International
Research Journal of Applied Finance, 9(4), pp.146-161.
Almansour, B., Almansour, Y. and Almansour, A., 2019. Small and medium size enterprise:
Access the financial and non-financial factors. Management Science Letters, 9(5),
pp.687-694.
Ahmed, I. and Manab, N.A., 2016. Influence of enterprise risk management success factors on
firm financial and non-financial performance: A proposed model. International Journal
of Economics and Financial Issues, 6(3).