Business Decision Making: Techniques, Analysis, and Application

This essay provides a comprehensive analysis of business decision-making, focusing on investment appraisal techniques. It begins with an introduction to the decision-making process and its importance, followed by the calculation and application of the payback period and Net Present Value (NPV) for evaluating investment projects. The essay then delves into the advantages and disadvantages of both NPV and payback period methods, exploring the financial and non-financial factors that impact decision-making, such as working capital, sales activity, management teams, and risk diversification. Through the use of formulas, calculations, and comparative analysis, the essay demonstrates how these techniques can be applied to assess the potential returns from different software projects, ultimately concluding that effective decision-making is crucial for business success and requires a focus on both financial and non-financial aspects. The essay references various academic sources to support its arguments and analysis.

Business Decision Making

Contents
INTRODUCTION.......................................................................................................................................3
MAIN BODY..............................................................................................................................................3
1. Calculation of payback period.............................................................................................................3
2. Calculation of Net Present Value (NPV).............................................................................................4
3. Analysis...............................................................................................................................................5
CONCLUSION...........................................................................................................................................7
REFERENCES............................................................................................................................................8

INTRODUCTION
Decision-making is the decision-making method by defining a decision, collecting facts
and reviewing qualitative method. By arranging appropriate data and identify strategies, the use
of a process by process decision-making process will make it easier to communicate, more
educated choices (Malfait and et. al, 2017). Decision-making and problem-solving are
developments of analyzing circumstances or challenges, contemplating solutions, making
decisions and matching these through with either the activities needed. It is mainly depend on the
XYZ Company that wants to invest into software project. For this apply investment appraisal
techniques to analysis return from project A and project B.
MAIN BODY
1. Calculation of payback period
Year Project A Cumulative
cash flow
Project B Cumulativ
e cash flow
Year 0 £ 100,000 - £ 120,000 -
Year 1 £ 28,000 £ 28,000 £ 31,000 £ 31,000
Year 2 £ 32,000 £ 60,000 £ 38,000 £ 69,000
Year 3 £ 35,000 £ 95,000 £ 43,000 £ 112,000
Year 4 £ 55,000 £ 150,000 £ 64,000 £ 176,000
Year 5 £ 78,000 £ 228,000 £ 89,000 £ 265,000
Formula:
Payback period: Year before full recovery + unrecoverable cost / cash flow during the year
Project A = 3 + £ 5,000 / £ 55,000
= 3 + 0.90

= 3.90 year
Project B = 4 + £ 56,000 / £ 64,000
= 4 +0.87
= 4.87
2. Calculation of Net Present Value (NPV)
Year Software Project PV @ 11% DCF
Year 0 -£ 100,000 1 -£ 100,000
Year 1 £ 28,000 0.900901 £ 25,225.23
Year 2 £ 32,000 0.811622 £ 25,971.92
Year 3 £ 35,000 0.731191 £ 25,591.7
Year 4 £ 55,000 0.658731 £ 36,230.2
Year 5 £ 78,000 0.593451 £ 46,289.2
NPV £ 59,308.25
Year Laundrette
Project
PV @ 11% DCF
Year 0 -£ 120,000 1 -£ 120,000
Year 1 £ 31,000 0.900901 £ 27,927.93
Year 2 £ 38,000 0.811622 £ 30,841.65
Year 3 £ 43,000 0.731191 £ 31,441.23
Year 4 £ 64,000 0.658731 £ 42,158.78

Year 5 £ 89,000 0.593451 £ 52,817.17
NPV £ 65,186.76
3. Analysis
Advantages and Disadvantages of NPV and Pay Back period
Payback Period: The "payback period method" is a way for the company to try figuring
out where revenue stream from multiple works would arrive in, or which one may get the fastest
reversion on original investment, considered the "payback period."
Merit: There may be endless possibilities for acquisitions and multiple ventures,
depending on the method of company being run. Unless you're a team leader who had twenty
alternative options to glance at and scrutinize, it will be hard to figure out where the ones to
concentrate on. Whether they have to pick more than one project, it is even more so.
Demerit: For a simple payback process, there are also some major things to consider, one
of which was it only focuses at working capital over a given amount of time. When a company is
only trying to see how easily even on its expenditure they can split, that's great, though that's
definitely really not the issue. The return on that investment would not have been a element in
such ratings, because after capital cost is repaid in full, which can be very small-sighted.
Net present value: It is the distinction between some of the cash inflows original cost and the
cash audit conducted purchase price. The statistic is centered on a fixed period of time and is
important for money management money and scheduling expenditure. This method gives a direct
means of analyzing the sales and profits of a viable investment proposal.
Merit: Investments often happen in the corporate sector. The present value of cash inflows does
more than quantify a private equity fund. Corporations also can use these ratios to evaluate
whether a potential investment worth’s various tasks. Using this method, the statistics produced
will let us realize whether one venture would be more successful than someone else. This allows
the general choice for lengthy-term development and sustainability to be chosen either from
percentages or overall cost standpoint.

Demerit: Net Present Value must imagine whatever the return on capital was for a company in
the first place. If one supposes this statistic would be too close to zero then a sequence of
inadequate investment opportunities will result. If that's too large the ratio will hold users away
from other decent purchases. To see how it can be beneficial to take knowledge from a range of
suppliers before taking these factors so a complete explanation about what to anticipate is
extremely easy to get.
Financial and non financial factors: There are identified various financial and non financial
factors impact on the decision making procedure such as:
Working capital: Working capital is calculated as having less retained earnings than current
assets. A corporation can't remain alive without adequate capital investments so one main
calculation is the ratio of net profits to working capital ratio. It tests how effectively the capital
investment is being used to accomplish company goals.
Sales activity: The overall sales can seem rosier than they already are. When analyzing the level
of sales and profitability rise, understand the context to say if the rate of increase is due to greater
total sales or rising wages. Remember also the economy as a whole. If the marketplace feels
established, sales could be static which may be why the dealer is looking to dump the
corporation.
Strong management team: In specific, it’s crucial that employees take time to analyze this
quickly. After all, one-third of company owners did not take into account despite important and
they're too concentrated on day and-to-day areas of a business. Less than 25 per cent are
comfortable knowing that even without the engagement of the holder, their executives would be
able to succeed.
Diversified human capital risk:
CONCLUSION
From the above report it has been concluded that to make a business successful require
making effective decision. On the basis of different investment appraisal techniques like NPV,
ARR and payback period a company estimate of net return from the investment in particular

project. For this require to focus on every factors that related with the business in direct and
indirect manner like financial and non financial factors like working capital, good management
team.

REFERENCES
Books and journal
Mola, L., Rossignoli, C., Carugati, A. and Giangreco, A., 2020. Business intelligence system
design and its consequences for knowledge sharing, collaboration, and decision-making:
an exploratory study. In Information Diffusion Management and Knowledge Sharing:
Breakthroughs in Research and Practice (pp. 382-402). IGI Global.
Malfait, S. and et. al, 2017. The impact of stakeholder involvement in hospital policy decision-
making: A study of the hospital’s business processes. Acta Clinica Belgica. 72(1). pp.63-
71.
Aritz, J., Walker, R., Cardon, P. and Li, Z., 2017. Discourse of leadership: The power of
questions in organizational decision making. International Journal of Business
Communication. 54(2). pp.161-181.
Butler, M. J., O'Broin, H. L., Lee, N. and Senior, C., 2016. How organizational cognitive
neuroscience can deepen understanding of managerial decision‐making: A review of the
recent literature and future directions. International Journal of Management
Reviews. 18(4). pp.542-559.