Use of software-generated information to make organizational decisions
CONTENTS
1 Introduction…………………………...………………………3
2 Analysis
4.1Use appropriate information processing tools………………………..4
4.2 Prepare a project plan for an activity and determine the critical path.5
4.3 Use financial tools for decision making……………………………..7
3 Conclusions………………………………………………….11
References…………………………..…………………………11
Introduction
The net present value method works out the present values of all items of income and expenditure related to an investment at a given rate of return, and then works out a net total. If it is positive, the investment is considered to be acceptable. If it is negative, the investment is considered to be
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The foundations must be laid out, dug, inspected and concreted.
Recruitment:
Total project: recruitment
First level
Recruitment planning
Recruitment
Job
Interview
Employ
Second level
Final interview and identify
Determine and notify
Admission procedure
Examination and approval
Family vacation:
Total project: family vacation
First level
Travel planning
Buy a ticket
To prepare articles
The end of journey
Set out
Traveling
Second level
Put away the clothes
Preparation of trunk
Take a travel articles
4.3 Use financial tools for decision making
(a) Calculate the net present value of the proposed investment in product Fox.
Calculation of net present value
Year 0 1 2 3 4 £ £ £ £ £
Sales revenue 728,000 1,146,390 1,687,500 842,400
Variable costs (441,000) (701,190)
The NPV of an investment proposal is found by adding the present values of all of its estimated
Free cash flows of the project for next five years can be calculated by adding depreciation values and subtracting changes in working capital from net income. In 2010, there will be a cash outflow of $2.2 million as capital expenditure. In 2011, there will be an additional one time cash outflow of $300,000 as an advertising expense. Using net free cash flow values for next five years and discount rate for discounting, NPV for the project comes out to be $2907, 100. The rate of return at which net present value becomes zero i.e.
NPV analysis uses future cash flows to estimate the value that a project could add to a firm’s shareholders. A company director or shareholders can be clearly provided the present value of a long-term project by this approach. By estimating a project’s NPV, we can see whether the project is profitable. Despite NPV analysis is only based on financial aspects and it ignore non-financial information such as brand loyalty, brand goodwill and other intangible assets, NPV analysis is still the most popular way evaluate a project by companies.
2. Net Present Value – Secondly, Peter needs to investigate the Net Present Value (NPV) of each project scenario, i.e. job type, gross margin, and # new diamonds drills purchased. The NPV will measure the variance of the present value of cash outflow (drilling equipment investment) versus the future value of cash inflows (future profits), at the benchmark hurdle rate of 20%. A positive NPV associated with the investment means that the investment should be undertaken as it exceeds the minimum rate of return. A higher NPV determines which project scenario will have the highest return on cash flow, hence determining the most profitable investment in terms of present money value.
| |assumption of the net present value method. That is that inflows are reinvested at the cost of capital. |
Account for time. Time is money. We prefer to receive cash sooner rather than later. Use net present value as a technique to summarize the quantitative attractiveness of the project. Quite simply, NPV can be interpreted as the amount by which the market
Net Present Value (NPV) calculates the sum of discounted future cash flows and subtracting that amount with the initial investment of the project. If the NPV of a project results in a positive number, the project should be undertaken. It is the most widely used method of capital budgeting. While discount rate used in NPV is typically the organization’s WACC, higher risk projects would not be factored in into the calculation. In this case, higher discount rate should be used. An example of this is when the project to be undertaken happens to be an international project where the country risk is high. Therefore, NPV is usually used to determine if a project will add value to the company. Another disadvantage of NPV method is that it is fairly complex compared to the other methods discussed earlier.
3. calculate net present value ignoring intangible benefits and then, if the NPV is negative, estimate whether the intangible benefits are worth at least the amount of the negative NPV.
Thinking critically and making decisions are important parts of today’s business environment. It is important to understand how the decision making process works and the steps involved. The nine steps of the decision making process are: identifying the problem, defining criteria, setting goals and objectives, evaluating the effect of the problem, identifying the causes of the problem, framing alternatives, evaluating impacts of the alternatives, making the decision, implementing the decision, and measuring the impacts. (Decision, 2007.) By using various methods and tools to assist in making important business decisions an individual can ensure the decisions they make will be as successful as possible. In this paper it
This assignment consists of four tasks – evaluation of collaborative tools (blackboard, social media, and online calendar) of a new project named accounting database creation using Microsoft Access 2010 of Reliable Software Ltd; estimate efforts of new project components based on the past data; analysis data for making conclusions of concerned components; and contingency plan development.
While this method utilizes the concept of cash flow and uses the initial investment as the denominator, discounted cash flow is still not used, and we suspect this method is geared more towards the comfort level of OL managers, while WD managers would continue to utilize the NPV and IRR figures.
The process of organizational change can be tumultuous and filled with unexpected challenges. This is true even when organizational change is intended to promote improvement of processes, procedures and efficiencies. This is why key decision-makers within an organization must take steps to prepare for obstacles and must possess a comprehensive understanding of the theoretical implications of a chosen decision. In a fast-paced and continually globalizing business environment, the way that we make decisions, follow-through with them and adjust them in the face of difficulty will be a key determinant of long-term survival, let alone success. The inherent challenges of effective decision-making and adjustment are demonstrated in the discussion hereafter, which proceeds from a personal experience where I participated in a decision-making process. In the chosen scenario, the decision fared poorly and the company suffered the negative consequences both it the experience of its personnel and in its overall performance. The discussion here gives consideration to the role of 'best fit' vs 'best practice' in business decision-making. Likewise, the sunk-cost effect and the transtheoretical model would both be relevant theoretical models in the course of the experience detailed hereafter.
According to the case study Nissan has a pacific product line compared to its competitors. Nissan uses a build to stock method for some models of vehicle, while the rest of the methods of vehicle are building to order. This style of operations management should save the company money. There is an example of this found in the Nissan case study on page 4.
The overall method used to calculate the expected value of the net present value of the project is to first calculate the real weighted average cost of capital of the firm, use the
This analysis will determine whether or not the project is worth pursuing using a net present value (NPV) approach.