This sample will let you know about:
- Define Business Decision Making.
- What factors are important for business decision making?
INTRODUCTION
Business decision making is a systematic process of selecting best course of action among other course of actions. In other words it is a method of taking strategic decision by managers. Organisation use this framework for achieving their predetermine goal through optimum utilization of their resource. To understand the concept of decision making ABC plc has been taken. The company is established in united kingdom (Jankowski Lotov and Gusev, 2019).
They choose united kingdom and various countries of Europe as their target market area in which they sell their software products. In this report uses of various financial accounting technique in decision making . And importance of financial and non financial factors in decision making has been identified.
Computation of Payback period of project
A Motor Software Project
Years Net Cash Flow Total
1 8000 (40000)
2 12000 (32000)
3 16000 (20000)
4 20000 (4000)
5 30000
Payback period = Years before full recovery + Uncovered cost at starting of the year / Cash flow during the year (Linder and Williander 2017 ).
Payback period = 3 + 4000 / 20000 = 3.2
Computation of Payback period of project B( Hardware Project)
Years Net Cash Flow Total
1 10000 (60000)
2 20000 (50000)
3 25000 (30000)
4 30000 ( 5000)
5 40000
Payback Period =3 years & * 12 months = 3 years and 2. months.
Interpretation:
Payback period is a method of analysis rate of risk of an investment decision. In other words it is a tool of capital budgeting which uses to define time period require an organisation to recover their initial capital. It is one of the easiest method of analysing performance evolution of each alternative. Mangers uses this technique as it provides quick solution and focus on liquidity.
In this case payback period of project A is 3 year and 2.4 moths and payback period of project B is 3 years and 2 months . It means that if ABC plc invest in project A then they take more time in recover their invested capital amount. Lower payback period refers high efficiency quality of recovering capital amount by an organisation. Thus project B is much beneficial for ABC plc then compare to project A. NeedAssignment Samples.Talk to our Experts!
Computation of NPV of project A (Motor Software Project)
Period of Net Cash Flow £ Discounted Factor At 12% Present Value (Gylling Heikkil¤, Jussila, and Saarinen, 2015)
1 8000 .893 7144
2 12000 .797 9564
3 16000 .712 11392
4 20000 .636 12710
5 30000 .593 17010
Sum 57830
Formula of NPV = Total present value €“ Initial investment (Yoon Vo and Venkatraman, 2017).
NPV > £57830.82 €“ £40000 = £17830.82
Computation of NPV of project B(Hardware Project)
1 10000 .893 8930
2 20000 .797 15940
3 25000 .712 17800
4 30000 .636 19080
5 40000 .593 22680
Sum 84430
Net present value =Total present value €“ Initial investment (Evert Martin McLeod and Payne, 2016).
Net present value = £84430 £ 60000 = £ 24430
Interpretation: Net present value is a method which use by managers to identify present value of future cash inflows. This tool of capital budgeting also helps in decision making process. Benefit of this method is that it includes value of time factor during the process of decision making . Net present value use to compare profitability level of alternatives .
In this case net present value of project A is 17830 and project B is 24430. That means project B generate more profits in future then compare to project because et preset value of project B is high then compare with project A.
Factors define as those resources which helps in regulating business entities. Success of an organisation is depends on how these factors effect in running organisation. Financial and non financial factor are part of factors. Financial factors are those resources which are necessary for business entities. These factors helps in maintaining capital requirement of an entity.Get help with USA's leading online assignment helper!
Profits, interest , rate of interest, sources of income, cash equivalent , tax considered as financial factors. Non financial factors are those factor which directly impact on the level of efficiency of an organisation. Workforce, raw materials, social environment, rules and regulation of organisation are considered as non financial factors. Managers uses financial and non financial factors in their decision making process. Requirement of financial and non financial factors are mention below :
Financial factors
- Manager make decision after considering availability of monetary stock of the organisation (Gautier A. and Pache, 2015).
- These factors helps management to recognize risk elements available in alternatives
- Business entities use financial and non financial factors as these factors help in analysing performance status of their business activities within the organisation.
- Policies and strategic planning are made after considering effect of non financial factors on organisation. Get finance homework help from our experts!
Non financial factors
- Business decide to choose those factors which can be understood and easily adopt by their workforce (Trianni Cagno and Farn©, 2016).
- Decisions are made on the basis of managerial policies and management styles adopted buy organisations to run their business.
- Rate of interest and returning rate directly impact on decision making process as managers choose those alternative whose interest rate on investment is high compare to other alternatives.
- Financial factors use in decision making process as managers make decision regarding providing incentives , bonus and promotion is totally depends on the net profit generating by an organisation for particular time period.
Factors are essential tool in decision making process as all the decision regarding financial , investing and others are totally depends on impact of financial and non financial factors of the business organisation (Jamali and Karam, 2018).
CONCLUSION:
From the above analysis it has been concluded that success of an entity is depends upon the decisions take by their ,mangers to achieve their goals. Thus business decision making is an essential process which help managers to decided best alternative projects with compare to others. Organisations uses different capital budgeting technique to analysis profitability and efficiency level of each alternative. Managers of an organisation take decision regarding business activities on the basis of their financial and non financial factors as they directly impact on their sustainability level in competitive environment.
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