Decision Making for Business

3538 WordsJul 14, 201315 Pages
DECISION MAKING FOR BUSINESS Table of Contents Part A: 2 1.0 Analysis of incremental cost for Fleet Ltd.: 2 2.0 Analysis of the reported profit volume: 2 3.0 Consideration of determining factors in decision making process: 2 4.0 Recommendation: 2 5.0 Executive summary: 2 Part B: 2 1 a) Derivation of cash flows for three available options (amounts in , 000): 2 1 b) Derivation of accounting rate of return for three available options (amounts in , 000): 2 1 c) Derivation of payback periods for three available options (amounts in ,000): 2 1 d) Derivation of Net Present Value for three available options (amounts in ,000): 2 1e) Derivation of internal rate of return for three available options (amounts in , 000): 2…show more content…
2.0 Analysis of the reported profit volume: | Year 1 | Year 2 | Year 3 | Cost before outsourcing per year | 335000 | 336000 | 336000 | Revenue generated per year | 0 | 0 | 30000 | Per year Profit/loss volume | -335000 | -336000 | -306000 | | Year 1 | Year 2 | Year 3 | Cost after outsourcing per year | 632000 | 613000 | 614000 | Revenue generated per year | 0 | 0 | 40000 | Per year Profit/loss volume | -632000 | -613000 | -574000 | Fig 2: Profit/loss in both situations The above profit and loss analysis of the organization in both cases; before restructuring of IT department and after restructuring the IT department. However, the analysis shows that there is an increment in the loss volume of the organization during the three years after restructuring the IT department. 3.0 Consideration of determining factors in the decision making process: The decision making process involved in the any kind of outsourcing activity needs to be based on two determining factors such as incrernental cost and incremental revenue. In the context of the present study, analysis of these two factors has been conducted without considering the influence of the inflation rate. Hence, it has been considered that the calculations conducted in the study focus on only the nominal value rather than the real value. The decision making process involving the IT department can be outsourced to the third party in order to achieve less operational complexity. However, the

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