Expansion of Retail Store

The provided content discusses the selection of options based on a decision matrix and the causes of principal-agent problems in an organization. The company Green is considering expanding its retail stores to increase growth and profitability. According to the decision matrix, this option has the highest score with minimal investment and resources required. However, the expansion will also bring challenges such as information asymmetry, where agents are not aware of the objectives or intentions of principals. Therefore, it is essential to consider multiple factors when making decisions and provide weight materiality to define the importance of these factors.

Integrated Case
Study
1

TABLE OF CONTENTS
Introduction......................................................................................................................................3
Task 1...............................................................................................................................................3
2. Decision Matrix.......................................................................................................................3
4. Causes of principal agent problem...........................................................................................4
Conclusion.......................................................................................................................................6
References........................................................................................................................................7
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ILLUSTRATION INDEX
Illustration 1: Principal agent problem............................................................................................5
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INTRODUCTION
Present project report is focused on the evaluation of integrated case study of Green
organization. They are operating in supermarket sector and they are planning for expansion. For
this aspect, management of the company have six proposed investments. In this report,
comparative evaluation of these options will be provided by making use of decision matrix.
Further, reasons of principal agent problem will be described along with the strategies to resolve
this issues.
TASK 1
2. Decision Matrix Investment cost- In this factor, ranking will be provided by considering cost of investment
required for the expansion of the business. By considering the scenario of Green
business, it can be noticed that petrol station will require high cost due to established
expenses (Alam and Shakil, 2014). On the other hand, last three options i.e. bakery,
sandwich and printing work will require minimum investment. However, in this aspect
printing investment will be variate on the basis of size of operations. Expansion or
opening of new store require optimum investment because it is linked to the existing
business of the company. Impact on turnover- Each expansion option have different impact on the revenue of the
business. This factor plays important role in decision-making aspect because it will
directly affect profitability of business (Xu, 2015). Expansion of store, petrol station and
new store can provide good hike to the profit of business but other options are not likely
to provide high revenue.
 Management consensus- Management consensus can be considered as consent provided
by members or directors of the company for the decisions of business. Mainly, there are
five members in the company. Some members are aggressive investor while some are
moderate investors. By considering this aspect, management will provide consent to the
expansion option that have optimum risk and high opportunities of profitability.
Table 2: Decision Matrix
Proposal Investment Weight Impact Weigh Likely Weighted Total
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Cost (IC)
(0.5)
A
ed
IC
(B=A*.
5)
on
Turnove
r (IT)
(0.3)
(C)
ted IT
(D=C*
.3)
Managemen
t Consensus
(MC)
(0.2)
(D)
MC
(E=D*.2)
score
(B+D+E)
Expand
Store
4 2 4 1.2 5 1 4.2
Petrol
Station
2 1 5 1.5 1 0.2 2.7
New
Store
4 2 3 0.9 5 1 3.9
Expand
Bakery
5 2.5 2 0.6 3 0.6 3.7
Sandwic
h Bar
5 2.5 2 0.6 3 0.6 3.7
Printing
Works
3 1.5 1 0.3 1 0.2 2.1
Selection of option of the basis of decision matrix
By considering the decision matrix of company it can be noticed that expansion of retail
store is most beneficial choice for growth of business. It is because, it has the highest score in the
matrix (Decision matrix analysis, 2015). This option will not require high investment and
resources. Expansion of existing store will be supported by reserve and surplus of business. In
addition to this, management members will also support this aspect because with minimum risk
they can earn good profits.
4. Causes of principal agent problem
Causes of principal agent problem
In an organization, all members have dual character of principal and agent. It is because,
they all are responsible for the action of one another. In this principal agent relationship, there
are certain aspects which cause problem. Principal agent problem can be defined as situation in
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which a principal create an environment where there is absence of alignment between incentives
of agent (Definition of principal/agent problem, 2015). In this aspect, generally, principal is
responsible to assure that incentives are provided in a proper manner by which agent can provide
satisfactory performance. Description of these factors is as follows-
 Information asymmetry- Main reason of cited problem is information asymmetry. It is
because, agents are not aware about the objectives or intentions of the principals. In the
given case situation, principal i.e. Mr Tom Green wants to invest in safe option while
other members want to take risk in order to avail better opportunities (Ciliberti, and et. al.
2011).
Mainly, this issue arises in situation where two parties have different interests or agent is having
in excessive information. Due to this aspect, principal cannot rely on the agent on the basis of
fact they will not always act as per best interest of parties.
Reason for expansion
Green is currently operating in market of Bosney. At their current market place they do
not have to face competition because big supermarket firms are not entitled for operations in that
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Illustration 1: Principal agent problem
(Source:Ciliberti, and et. al. 2011)

area. However, in terms of profit Green is not efficient as they are not earning high profits. Due
to this aspect, company is required to expand their operating activities. By making suitable
strategies company is able to compete with these firms.
CONCLUSION
In accordance with the present study, it can be concluded that decision of expansion
should be supported by various factors instead of considering single factors such as profitability.
Further, by providing weight materiality of these factors can be defined in order to make better
decision. In this manner, company will be able to avoid risk of failure and possibility of potential
losses.
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REFERENCES
Books and journals
Alam, M. and Shakil, K. A., 2014. A decision matrix and monitoring based framework for
infrastructure performance enhancement in a cloud based environment. Preprint arXiv.
Ciliberti, F., and et. al. 2011. CSR codes and the principal-agent problem in supply chains: four
case studies. Journal of Cleaner Production. 19(8). pp. 885-894.
Xu, Z., 2015. Uncertain Multi-Attribute Decision Making: Methods and Applications. Springer.
Online
Decision matrix analysis. 2015. [Online]. Available through
<https://www.mindtools.com/pages/article/newTED_03.htm>. [Accessed on 2nd
November 2015].
Definition of principal/agent problem. 2015. [Online]. Available through
<https://www.mindtools.com/pages/article/newTED_03.htm>. [Accessed on 2nd
November 2015].
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