Business Decision Making Essay: University of Suffolk, BABS Module

This essay analyzes business decision-making processes, focusing on capital budgeting techniques such as Net Present Value (NPV) and payback period assessment. It evaluates the viability of investment proposals, comparing projects A and B based on their payback periods and NPV. The essay also examines the significance of both financial and non-financial factors in decision-making, including revenue, expenses, and qualitative elements like political and economic influences. The conclusion emphasizes the role of investment appraisal techniques in selecting the most suitable projects and highlights the importance of considering various financial and non-financial measures to achieve organizational goals effectively. The essay is a response to a Business Decision Making assignment for the BABS course at the University of Suffolk.

Business Decision Making

Table of Contents
INTRODUCTION...........................................................................................................................3
Analysing viability of investment proposal using capital budgeting tools .................................3
Assessing financial and non- financial factors that aid in business decision making .................6
CONCLUSION................................................................................................................................6
REFERENCES................................................................................................................................1

INTRODUCTION
Business decision making refers to the process of defining an action courses that is been
chosen from the set of an alternative fro achieving managerial or an organizational goals. In
other words, process of decision making is the constant and an indispensable element in
managing activities of the business in an appropriate manner. The present report is based on
evaluation of capital budgeting decision with an application of NPV and payback method.
Moreover, it also present ways in which financial and the non-financial measures that helps in
making decisions.
Analysing viability of investment proposal using capital budgeting tools
In the context of business unit, capital budgeting tools and techniques are highly
significant which helps in assessing the extent to which proposed investment will aid in the
organizational growth as well as profitability.
Payback period assessment
Payback period- It means an amount of time taken for recovering cost of an investment.
Desirability of an investment directly relates to the company's payback period. It is been
computed by dividing the cost of investment with that of the annual cash flows. Longer payback
period reflects that the project will be taking more time in recovering an initial cost or initial
outlay and is not depicted as good for the firm. However, Shorter the payback period seems as
better for the company as it depicts that less time is taken by the proposal in covering an intial
cost invested by the firm.
Year
Project A –
Motor
Software
Project (in £)
Cumulative cash
inflow
Project B –
Hardware
Project (in £)
Cumulative cash
inflow
1 8,000 8,000 10,000 10,000
2 12,000 20,000 20,000 30,000
3 16,000 36,000 25,000 55,000
4 20,000 56,000 30,000 85,000
5 30,000 86,000 40,000 125,000

Payback period:
Project A:
3 + 4000 / 20000
= 3 + .2
= 3.2 years or 3 years and 2 months
Project B:
3 + 5000 / 30000
= 3 + .2
= 3.2 years or 3 years and 2 months
Interpretation- From the above evaluation it has been interpreted that as both the projects
are resulting the same payback period equating to 3.2 years which indicates that both the
proposals will be taking the same time in recovering an initial cost of investment. Moreover, this
shows that Project A as well as Project B are considered as desirable for the company. The
period resulted reflects a shorter payback which means that company would be beneficial in both
the cases either it selects project A or project B.
Assessment of net present value
Net present value- It is referred as the difference in between present and the future values
of all the cash outflows over the period of time. It is calculated by subtracting the initial outlay
from sum of the discounted cash inflows. It is used as the capital budgeting technique and an
investment planning in analysing profitability of the projected investment or the proposal.
Positive value of NPV states that the projected earnings that are generated by the project will be
higher and company will be generating profits from it. On the other side, negative value of NPV
depicts that the proposal will be generating losses.
Year
Project A – Motor
Software Project (in
£)
PV factor @
12%
Discounted cash inflows
(in £)
1 8,000 0.893 7143
2 12,000 0.797 9566

3 16,000 0.712 11388
4 20,000 0.636 12710
5 30,000 0.567 17023
Sum of discounted cash
inflows 57831
Less: initial investment 40000
NPV 17831
Year Project A – Motor
Software Project (in £)
PV factor @ 12%
Present value of
cash inflows (in £)
1 10,000 0.893 8929
2 20,000 0.797 15944
3 25,000 0.712 17795
4 30,000 0.636 19066
5 40,000 0.567 22697
Total of present
value of cash flows 84430
60000
NPV 24430
Interpretation- The above analysis shows that Project B will be deemed as more
profitable fro an organization as compared to Project A because former project resulting higher
value of NPV that is 24430 than latter project equated to 17831. As higher net present value

means higher profits, therefore, project B is seen as desirable, viable and feasible for the
company in comparing with the project A.
Assessing financial and non- financial factors that aid in business decision making
A business contains various information that are related to both the financial and non
financial factor. Financial factors and information are related to the quantitative information
impacting the business (Garcia and et.al., 2016). Financial factors are generally he cost of sales,
revenues, expenses, profits and other relevant information related to the business covered in
income statement, balance sheet and cash flows. These contain very important information
related to the performance of company and its financial position. The financial factors includes
the availability of funds and resources for carrying out business. These financial information is
used by the organisation in taking steps and measures for improving he profitability and reducing
the cost of company to minimum (Eisenberg, 2016). The information is essential for the business
to make decision for their improvement. The factors influencing the business and its performance
is essential to be considered and analysed using appropriate methods and concepts.
On the other hand non financial information provides information related to the
qualitative factors influencing the business and its decision making (Lexutt, 2020). These
information are often ignore by the business but has an equivalent importance for the business.
Non financial factors include the political influences, economic factors, social, technological and
other related factors. This also involves lack of motivation, inefficient workers with which it is
difficult for company to achieve its goals and objectives (Ahmed and Manab, 2016). Company
is required to analyse and consider all these factors in decision making as they affect the business
and its profitability.
CONCLUSION
From the above report, it has been concluded that investment appraisal technique helps in
assessing the most suitable project by evaluating its desirability and feasibility. There are various
financial and the non-financial measures which helps the company in making adequate and best
possible decisions so that goals and objectives of the company can be achieve effectively and
efficiently.

REFERENCES
Books and journals
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). pp.830-836.
Eisenberg, P., 2016. Performance Measurement and Management Promotion through Non-
Financial Measures: A Management Accounting Perspective. MPRA Paper. (75409).
pp.50-64.
Garcia, S. and et.al., 2016. Corporate sustainability management: a proposed multi-criteria
model to support balanced decision-making. Journal of Cleaner Production. 136. pp.181-
196.
Lexutt, E., 2020. Different roads to servitization success–A configurational analysis of financial
and non-financial service performance. Industrial Marketing Management. 84. pp.105-125.
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