Evaluating Financial & Non-Financial Factors in Business Decisions

This report delves into the crucial role of business decision-making, highlighting the influence of both financial and non-financial factors. It examines strategic, operational, and tactical approaches for improved decision-making, alongside financial metrics such as payback period and Net Present Value (NPV). The report presents calculations for payback period and NPV for two projects, A and B, interpreting the results to determine project profitability. It further discusses tactical, strategic, and operational decision-making types, and explores financial factors like borrowing rates, tax rates, and salaries, and their impact on business operations. Non-financial factors, including political, social, and technological aspects, are also examined for their qualitative influence on long-term business success. The report concludes that effective decision-making requires a balanced consideration of both quantitative and qualitative factors for sustainable business growth.

Business Decision
Making

Table of Contents
INTRODUCTION ..........................................................................................................................3
Main body........................................................................................................................................3
Calculation of payback and NPV of both the projects...........................................................3
Describe the financial and non financial factors....................................................................4
CONCLUSION ...............................................................................................................................6
REFERENCES................................................................................................................................7

INTRODUCTION
The report below highlights the importance of Business decision making process &
financial and non financial factors that influence decision making of a business. It includes
strategic, operational, tactical for better and improved way of decision making (Bertoncel, and
et.al., 2018). Report also highlights Pay back period and Net present value which explains
difference between present value of fund flow expected to take place and capital required for
business at initial level (Dobrucalı, 2018).
Main body
Calculation of payback and NPV of both the projects.
Project A :
Table presenting Calculation of Payback period
Year Cash Flow Cumulative Cash Flow
0 -158000 -158000
1 72000 -86000
2 78000 -8000
3 82000 74000
4 110000 184000
5 125000 309000
Payback period of Project A : 2 + (8000/82000) = 2.097 years.
Calculation of Net present value
Year Cash P.V. Value @ 15% P.V. Of cash flow
1 72000 0.87 62568
2 78000 0.76 58968
3 82000 0.66 53956
4 110000 0.57 62920

5 125000 0.5 62125
Total 300537
NPV = P.V. Of Cash inflow – Cash outflows = 300537 – 158000 = 142537.
Project B :
Table presenting Calculation of Payback period
Year Cash Flow Cumulative Cash Flow
0 -155000 -155000
1 71000 -84000
2 73000 -13000
3 97000 84000
4 118000 202000
5 121000 323000
Payback period of project B : 2 + (13000/97000) = 2.113 years.
Calculation of Net present value
Year Cash inflow P.V. Value @ 15% P.V. Of cash flow
1 71000 0.87 61699
2 73000 0.76 55188
3 97000 0.66 63826
4 118000 0.57 67496
5 121000 0.5 60137
Total 308346
NPV = PV of cash inflow – Cash outflow = 308346 - 155000 = 153346.

Interpretation : It can be observed that in case of Payback period Project A is more
profitable in the long for business whereas in case of Net present value Project B would result
more favourable for the business.
Describe the financial and non financial factors.
Business decision making : It can be defined as a process which helps higher level
executives, managers, supervisors, professional in solving issues (Bamford, 2018). It provides a
guidance to choose the best path from available alternatives and it also provides a chance to
evaluate the decision whether it was beneficial for the company or not. There are 3 types of
decision making – Tactical, Strategic , operational.
1. Tactical : It is a type of business decision making which helps to plan decision and plans
which involve more in medium term goals (King and Kay, 2020). It assists in selecting
from a set of alternatives having a specified objective in mind. For example- Cutting
prices lower than competitors helps to increase earnings for a time period.
2. Strategic : It is a process which explains course of action implemented with having a
long term goal for running the business successfully and having a strong vision for
making your business better than before.
3. Operational : These are defined as decisions based on short term goals which could be
daily, weekly, hourly. It gives a detailed knowledge of operational activities, allocation of
resources, controlling inventory and managing efficiency and effectiveness.
Financial factors : These factors can be defined as a report card which highlights the
working of business and its performance so far (Smit, and Zoet, 2018). It can evaluated through
sales, revenue generated, profit earned and expenses incurred. Financial factors include
Liquidity, Fixed assets, Size of the firm, Valuation of the business. There are many factors which
affect finance related decisions and make it difficult for businesses to carry out operations in
given time frame. They are – Fixed operating cost, Floatation cost, Fund flow of company.
Financial risk can occur from markets which may take place due to change in share prices and
interest rates. Main financial factors which can be explained can be :
1. Borrowing rate : It is explained as the rate of interest levied on annual amount borrowed
on variable or fixed percent. Small organisations are dependent on credit lending such as
loans from bank, overdrafts processed for carrying out business operations.

2. Tax rate : Tax rate can be explained as the rate which a business can use as a tool to
expand its operations or it may hinder the growth as well. Such decisions can be
explained by – Capital gains, subsidies provided by government, corporate taxes.
3. Salary : Salary can be counted as an financial factor because it affects finance in
different ways. It is explained as a payment by company to its employees for motivating
them to do better and it generates an outflow of cash from the business as well.
Non – Financial factors : These factors can be explained as those which are helpful to
address expectations of at present legislation as well as future (Holsapple, and et.al., 2018). It
also explains to serve industry standards and give better results, Motivate staff morale, making
hiring simple process and retaining its employees for long run. Work on building relations with
clients and suppliers as well. It explains non financial factors which focuses on serving
qualitative products, allocation of resources for its best possible use, growth oriented and work
on expansion as well. Non – Financial factors could be :
1. Political : There are factors which affect business in qualitative ways but affect long term
running operations as well. Political factors could be which political party is in power and
what are the tax policies implemented, what are the foreign exchanges taking place in a
business. (Bolukbas and Guneri, 2018).
2. Social : Social factors such as purchasing habits of consumers, culture, religion and their
beliefs, income and saving budget one possess and the lifestyle one maintains and how
business could contribute in maintaining that lifestyle.
3. Technological : It explains advancement of technology with each passing day,
improvement in 3D technology and using innovative ideas and technology for proper
functioning of business.(Gonçalves and et.al., 2019).
CONCLUSION
The above prepared report concludes the factors which affect decision making in business
which are qualitative as well as quantitative too. It explains and gives us a thorough knowledge
of how cash can be managed, how business can recover the invested amount with passing years.
The above report calculates pay back period, net present value and explains financial and non –
financial factors which highlights the reasons and issues faced for running a business.

REFERENCES
Books and Journals
Bamford, T., 2018. Information driven decision making: fact or fantasy?. In Information
management in social services. (pp. 18-28). Routledge.
Bertoncel, and et.al., 2018. A managerial early warning system at a smart factory: An intuitive
decision‐making perspective. Systems Research and Behavioral Science. 35(4). pp.406-
416.
Bolukbas, U. and Guneri, A.F., 2018. Knowledge-based decision making for the technology
competency analysis of manufacturing enterprises. Applied Soft Computing. 67.
pp.781-799.
Dobrucalı, B., 2018. Country-of-origin effects on industrial purchase decision making: a
systematic review of research. Journal of Business & Industrial Marketing.
Gonçalves, and et.al., 2019. A multiple criteria group decision-making approach for the
assessment of small and medium-sized enterprise competitiveness. Management
Decision.
Holsapple, and et.al., 2018. Business social media analytics: Characterization and conceptual
framework.Decision Support Systems. 110. pp.32-45.
King, M. and Kay, J., 2020. Radical Uncertainty: Decision-making for an unknowable future.
Hachette UK.
Smit, K. and Zoet, M., 2018. Applying the Decision Model and Notation in Practice: A Method
to Design and Specify Business Decisions and Business Logic. In MCIS (p. 39).