Analysis of Business Decision Making: XYZ plc's Software Investment

This report analyzes the business decision-making process for XYZ plc, a budget hotel chain, focusing on a software investment decision. The report calculates the payback period and Net Present Value (NPV) for two projects: a software project and a laundrette project, providing detailed calculations for each. It then analyzes various financial factors, such as profit and interest rates, and non-financial factors, including technological and legal considerations, that impact business decisions. The conclusion summarizes the importance of evaluating both financial and non-financial resources in strategic planning and decision-making processes, emphasizing the use of payback period and NPV analysis to assess the effectiveness of new investments and strategies. The report references key academic journals and books to support its analysis.

Business Decision
Making

Contents
INTRODUCTION...............................................................................................................................3
MAIN BODY.......................................................................................................................................3
CONCLUSION....................................................................................................................................7
REFERENCES....................................................................................................................................8

INTRODUCTION
Business decision can be defined as set of actions which are purposely chosen from
different alternatives in order to achieve organisational predetermined goals and objectives
(Koporčić, Tolušić and Rešetar, 2017). Decision making is a continuous as well as crucial
component which is used by managerial department in order to manage all the business
activities effectively. In this report, this process is going to be conducted for XYZ plc which
is a budget hotel chain. This organisation is trading in the UK as well as in the some parts of
Europe. Now, organisation is facing some issue as their laundrette and hotel software system
have been outsourced thus they are looking to invest in software. Therefore, they wants to
analyse payback period and NPV, financial and non-financial factors that they can used to aid
decision making.
MAIN BODY
1. Calculation of payback period in project A & B
Payback period is basically refers to an amount of time that are takes to recover the
appropriate cost of n organisational investment. In context of XYZ, there are specific
information of two projects are determine in order to find one better option between them as:
Project A – Software Project
Year Net cash flow Cumulative Cash Flow
1 £ 28,000 28000
2 £ 32,000 60000
3 £ 35,000 95000
4 £ 55,000 150000
5 £ 78,000 228000
The net initial investment sum of Project A – Software Project is £100000. In 3rd year,
£95000 out of £100000 would be recovered; remaining £5000 will be recovered in next 1.1
months.
Payback period = 3 + (5000 / 55000 * 12)

= 3 + 1.09
= 3 years and 1.1 months
Project B – Laundrette Project
Year Net cash flow Cumulative Cash Flow
1 £ 31,000 31000
2 £ 38,000 69000
3 £ 43,000 112000
4 £ 64,000 176000
5 £ 89,000 265000
The net initial investment of Project B – Laundrette Project is £120000. In 3rd year, £112000
out of £120000 would be recovered; remaining £8000 will be recovered in next 1.5 months.
Payback period = 3 + (8000 / 64000 * 12)
= 3 + 1.4 = 3 years and 1.5 months
2. Calculation of NPV in project A and B:
Net Present Value is basically assist to XYZ in order to analyse different between the
present value of cash inflow and outflow over the period.
Formula: NPV = Cash flow / (1+i) t - initial investment
PROJECT A: Motor Software Project
Year Net cash flow PV factor @
11%
Discounted
cash flow
1 £ 28,000 0.9090 25454.54
2 £ 32,000 0.8264 26446.28
3 £ 35,000 0.7513 26296.01
4 £ 55,000 0.6830 37565.74
5 £ 78,000 0.6209 48431.86

Total discounted cash flow 164194.44
Less: initial investment 100000
Net Present value 64194.44
PROJECT B: Hardware Project
Year Net cash
flow
PV factor @
11%
Discounted
cash flow
1 £ 31,000 0.9090 28181.82
2 £ 38,000 0.8264 31404.96
3 £ 43,000 0.7513 32306.54
4 £ 64,000 0.6830 43712.86
5 £ 89,000 0.6209 55261.99
Total discounted cash flow 190868.17
Less: initial investment 150000
Net Present value 40868.17
Analysis of all the financial and non-financial factors are determined as
As per the above analysis it has been analysed that in order to manage new software
organisation, XYZ can implement an analysis process through Payback period and NPC
approach. Both these factors can assist organisation to evaluate effectiveness of their new
decisions.
Payback period is known as an investment technique that can define when the project
cost can be recovered (Vidal, Vidal-García and Barros, 2016). XYZ plc can implement this
process in order to analyse the expected time period in which they can recover the sum of
investment.

This process can be used to analyse the difference between original investment cost
and discount that contains in the project current value. XYZ plc can use this process to
analyse exact different their cash inflow and outflows.
Financial factors are which can affect business decision making in context of
implementing new strategy or running existing one in effective manner.
Profit is defined as financial benefit that realized when a desired revenue earned from
all the business activities (Amuna, Al Shobaki and Naser, 2017). It contains all the exceed
amount over business expenses, cost and taxes that involved in the sustaining activity of a
firm. Major use of profit is to pay all the returns and rewards to the business owners. Each
and organisation implement several activities in order to earn desired level of profit by
conducting operational and functional activity.
Interest rate is an amount charged by lender on the behalf of the uses of their assets
which are expressed in the form of percentage of the principal. Interest rate is usually noted
on annual basis which are known as Annual percentage rate.
Non-financial factor are those factors that have a direct impact upon financial factors
of the firm. These kind of factors affect business decision making in direct and indirect
manner. Non-financial factors may impact organisational performance in positive and
negative manner.
One most common non-financial factor is Technological factor which are the
variables related to the availability, development and existence of technology (Blanco-Mesa,
Merigó and Gil-Lafuente, 2017). These factors affect business decision making at the time of
its up-gradation. Now a days each and every organisation implement technological practices
in their business in order to run a business at advance level. The direct impact of these factors
upon firm can be in terms of how competitors uses technology or how market accepts
technological changes.
On the other hand, Legal factors are also known as most important non-financial
factors that can impact business decision making in direct and indirect manner. These factors
contains tax liability of a firm, legal activities, quality of products and service,
implementation of legislations, intellectual property rights and so on. Impact of these factors
needs to understand by the company in order to manage their direct impact.

CONCLUSION
From the above report it has been summarised that decision making process includes
implementation of evaluation practices that support business strategic planning. In these
regard an organisation can take decision by analysing capability of their financial and non-
financial resources.

REFERENCES
Books and journal:
Koporčić, N., Tolušić, Z. and Rešetar, Z., 2017. The importance of corporate brands for
decision making in the business-to-business context. Ekonomski vjesnik/Econviews-
Review of Contemporary Business, Entrepreneurship and Economic Issues. 30(2).
pp.429-440.
Vidal, M., Vidal-García, J. and Barros, R.H., 2016. Big Data and business decision making.
In Effective Big Data Management and Opportunities for Implementation (pp. 140-
157). IGI Global.
Amuna, Y.M.A., Al Shobaki, M.J. and Naser, S.S.A., 2017. The Role of Knowledge-Based
Computerized Management Information Systems in the Administrative Decision-
Making Process.
Blanco-Mesa, F., Merigó, J.M. and Gil-Lafuente, A.M., 2017. Fuzzy decision making: A
bibliometric-based review. Journal of Intelligent & Fuzzy Systems. 32(3). pp.2033-
2050.