Business Decision Making

This article explores the process of business decision making and the use of techniques like payback period and net present value (NPV). It discusses the advantages and disadvantages of these methods and considers financial and non-financial factors in decision making. The article also includes case studies and examples to illustrate the concepts.

Business Decision Making

Contents
INTRODUCTION.......................................................................................................................................3
MAIN BODY..............................................................................................................................................3
1. Calculate payback period.....................................................................................................................3
2. Calculate Net Present Value (NPV).....................................................................................................4
3. Analysis...............................................................................................................................................4
CONCLUSION...........................................................................................................................................6
REFERENCES............................................................................................................................................7

INTRODUCTION
Decision-making is an essential responsibility of administration, as decision-making is
linked to problem-solving, successful decision-making allows to reach the project goals or
objectives. Therefore the decision-making occurs in the business and includes all aspects of the
organization. It is a vital part of successful small business (Gong, Simpson and Tan, 2018).
Decisions associated with data base and rational thought will lead the organization to lengthy-
term prosperity; vice versa, decisions taken based on of faulty logic, irrationality, or inadequate
data will rapidly placed a simple operation out of industry. This essay is focused on XYZ Plc
seeking to spend money on new tech or venture laundrette since they have two separate ideas.
Supervisors must therefore decide things to choose any proposed design that gives them more
advantages. The calculation includes estimating the NPV or payback period and what are its
advantages and disadvantages.
MAIN BODY
1. Calculate payback period
Year Project A Cumulative
cash flow
Project B Cumulativ
e cash flow
0 100000 - 120000 -
1 28000 28000 31000 31000
2 32000 60000 38000 69000
3 35000 95000 43000 112000
4 55000 150000 64000 176000
5 78000 228000 89000 265000
Formula:

Payback period: Year before full recovery + unrecoverable cost / cash flow during the year
Project A = 3 + 5000 / 55000
= 3 + 0.90
= 3.90 year
Project B = 4 + 56000 / 64000
= 4 +0.87
= 4.87
2. Calculate Net Present Value (NPV)
Year Software Project PV @ 11% DCF
0 -100000 1 -100000
1 28000 0.900901 25225.23
2 32000 0.811622 25971.92
3 35000 0.731191 25591.7
4 55000 0.658731 36230.2
5 78000 0.593451 46289.2
NPV 59308.25
Year Laundrette Project PV @ 11% DCF
0 -120000 1 -120000
1 31000 0.900901 27927.93

2 38000 0.811622 30841.65
3 43000 0.731191 31441.23
4 64000 0.658731 42158.78
5 89000 0.593451 52817.17
NPV 65186.76
3. Analysis
Advantages or disadvantages of payback period or NPV:
Payback period: The payback methodology is a technique of assessing a proposal by
knowing how long the initial investment will consider taking to regain. While it is possible to
correct the duration amount of property by applying a simple moving financing costs
appreciation, it is generally recognized that this approach should not be used specifically for
investment decisions. Even manger is looking at buying unique properties or not, they generally
prefer investment opportunities with shorter payback intervals. These investment decisions are
much less problematic so the corporation receives money back faster and is able to accumulate it
in new machinery (Skyrius, 2018).
Advantages: It is absolutely important for the corporation world that have the generate
extra to be sufficient to transport out daily processes and make investment decisions in the team's
growth. A company will easily go for difficulty if they have more than enough of their money
invested in securities and no opportunity to do something about it easily. The payback period
approach would help to maintain the liquidity in the company for future development by
demonstrating leadership the right investments to concentrate on (Acharya and et.al, 2018).
Disadvantages: This method is very useful particularly in fast-moving businesses with a
number of sudden growths. The issue for most companies is that they may need a good mixture
of programs and expenditures so how they can take good care of the small, medium, and long-
term requirements. No company would be able to depend on this approach for their alternative

investments if they really want a successful life ahead of them. Using a number of approaches is
often best for making such decisions (Burger, Kalverkamp, and Pehlken, 2018).
Net Present value: Net Present Value (NPV) is the distinction between both the money
expenditures present price and the money outflows current value. This calculation is
depended on a particular amount of time and is helpful for financial planning capital and
scheduling expenditure. This procedure gives a real way of analyzing the profit margins of a
possible investment proposal (Korsemov, Borissova and Mustakerov, 2018).
Advantages: Cash flows are still unstable. And if an organization has maintained
accurate of inbound or outbound numbers, there is no assurance that the flow of this cash will
proceed. The Net Present Value operates to compensate for this threat, so shareholders can get a
better idea of what is expected during a project’s lifecycle. This benefit makes it much simply to
see whether a future operation will offer profit margin. Knowing what the actual budget of the
project is will also contribute to enhanced major choices due to the extreme knowledge that the
NPV provides.
Disadvantages: When working out this ratio, Net Present Value has a relatively high
responsiveness to the rate of return, since it is the amount of many net cash flows. To turn the
statistics into a current valuation it then requires favorable and pessimistic information. The
discount rate used in the numerator for each measurement of the discount rate is a major aspect
in deciding the final NPV figures. If this estimate indicates minor goes up or down, then this can
have a major effect on the final production (Wu and Beliakov, 2020).
Financial or non financial factors:
The financial considerations include the expenses etc. Non - monetary considerations are
those which may impact the overall decision and should also be factored into the equation when
making the decision. For instance, a complete closing of a company would result in job losses-
because a portion of a company will be outsourced. Many factors including such monetary and
non - monetary considerations are concerned. Financial considerations include cost of making
the product such as supplies, vehicles, infrastructure and wages plus all related costs such as
staffing costs, administrative expenses and maintenance expenses. To take right decision in
regard of XYZ company require focusing on the monetary and non monetary factors (Adrian,

Abdullah, Atan and Jusoh, 2018). There are mentioned 3 financial and non financial factors such
as:
Accounts receivable: Uncollected receivables are stunting the development of a
company and may trigger unexpected loans from banks. Closely inspect at metrics such as
receivable turnover reports, lending practices, accounts receivable plans and accruals ageing.
Net income: Using a set of net revenue ratios to get a clearer look at the end result of a
company. The ratio of gross income to net revenue, for example, will be used to evaluate if the
operating profit margin is already in line with that of major enterprises.
Working capital: Working capital is described as having fewer current liabilities than
current assets. A corporation can't remain alive despite adequate capital expenditures so one
main calculation is the percentage of actual revenues to working capital ratio. This tests how
effectively the working capital has been used to attain company goals.
Strong management team: A great management group, it has a direct impacts on the
wellbeing of the organization. Training the current buyer on the internal factors of the
organization from a week and-to-day perspective is simpler and guarantees business continuity if
top staffs remain with the company.
Diversified human capital risk: If a business focus on a single customer, employee, or
distributor, it can be seems. For instance, if a singular supplier gives upwards of quarter of owner
revenue generated, the owner is becoming more of a small businessman than a contracting
company. Plus, if a customer slows down demanding the services of the company for any
purpose, it presents a substantial risk.
Growth potential for customers, markets and products: Although financial statements
can be representative of the earnings development of a business, there are a number of non-
financial factors that can draw a clear understanding of (or absence of) it’s potential. Prospective
buyers or customers would like to see a transparent marketing strategy strategic plan involving
consumer base development, industries and probably even goods.
From the above calculation, it is assessed that the payback period is 3.90 years for the
software project and 4.87 for the Laundrette Project. Project A is more favorable compared to

Project B for XYZ Plc, based on the study of this method. Lower the duration of rehabilitation is
beneficial for the company as business recovers its initial investment in minimal time. Project A
has a total value of 59308.25, or Project B is 65186.76. Project B is more suitable for XYZ Plc as
per this investment appraisal method as it has high NPV which is good for any portfolio.
Business is advised to invest in project A which means in software since its healing process is
less and there is no other major gap in the current value (Ibarra, Ganzarain and Igartua, 2018).
CONCLUSION
As per the above report it has been concluded that to make the decision in regard of any
project require focusing on different investment appraisal techniques. There are applying NPV
and payback period to get effective results in regard of both projects. It helps to take right
decision in regard off business. Along with identify all the financial and non financial factors to
make decision easier in the context of business.

REFERENCES
Books and Journal
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