Various Approaches to the Process of Decision Making

TASK

Decision making requires the management to take sound and rational decisions. There are number of decisions taken by the management making it an critical and important part of organisation. Decisions are taken at various levels of organisation for achieving the organisational goals and objectives (Klačmer Čalopa, 2017). Decision-making is defined as process of making choices by identifying decisions, by gathering informations and by assessing the alternative resolutions. Step-by-step by approach helps organisations in making more deliberate and informed decisions through organizing relevant informations & defining the alternatives.

ABC plc is planning to make investment in new business for expansion. Company after checking variety of alternatives is available with the two alternatives that are Project A of Motor Software Project and Project B of Hardware project. Company expects return of 12% from the above projects. The feasibility of both the projects is assessed using the investment appraisal techniques. It gives the management with results on the basis of which it can decide whether to make investments or not in given projects. They also enable to make comparisons between the projects.

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Payback Period

The payback period is an investment appraisal technique that is used by analysts and experts to check the viability of project. It tells the period within which the project will be reaching its break even point and make profits.

Net Present Value

Net present value says projects is profitable if NPV of project is positive. It is calculated using the concept of time value of money. It shows the present value of future cash flows. NPV is derived after deducting the initial investment from aggregate cash flows from project after discounting (Zamani, Maeen and Haghparast, 2017).

PROJECT B - Motor Software project.

Net Present Value of Project B

Payback period of project B

PROJECT B – Hardware Project

Net present value of Project B

Payback period of project B

Recommendations

The above analysis is performed to check the more profitable project. Company is available with two options to invest either in the Motor Software project (A) or Hardware Project (B). NPV of project A is £17831 and of project B is £24430. Concept of NPV says that project is considered profitable if the net present value of project is positive. In the given alternatives NPV of both projects is positive, that shows that both the projects are profitable. But the one having higher profits should be selected as higher the NPV more is the profitability. This technique gives information about choosing project B.

The investment decision is checked applying other technique that is pay back period. Payback period shows the time within which company will be recovering its costs. Pay back period of Project A is 3 years and 7 months and payback of project B is 3 years and 7 months. Shorter the pay back period more beneficial for the company. Payback period of both the projects is not high. Payback of project A is more even when the investment is low. Project B involves higher investment but the payback period is less from project A. This shows project will start generating profits earlier than A. therefore company should adopt project B of Hardware having shorter payback period.

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Financial and Non Financial factors influencing decision-making process

Financial factors

The financial factors includes the facts and figures of business operations. They are related with the revenues, costs and profits. These are to be considered by the management in heir decision-making process. They enable the management to check the performance of company, funds available and to make estimates about future (Wang and Byrd, 2017). Financial statements statements provide an important financial base for organisation to make the