Unit 6 Business Decision Making Assignment Solution

Introduction

Business Decision Making is a important process in every organisation. Decision making means the process of selecting right option from available options logically. This report provides guidance in: collection sources of primary and secondary data , choose right option on the basis of measures of location and dispersion  selecting right investment plan with the help of capital budgeting methods and critical path method

Task 1

Introduction

Mr. John wants to open a cafe in London and wishes to launch a new brand of coffee. Investors of the cafe wishes to conduct a research to understand trend in the market. They contacted a research consultant who provides them all data after conducting research, sampling and survey.

1.1 Plan for collection of Primary and Secondary data

Market research project starts with the collection of data. Market research has two types. First is Primary research and second is Secondary research. Primary research is the source of collecting primary data and secondary research is the source of collecting secondary data. Primary data includes that information which not exists before in any form and it is identified and collected by business or researcher themselves. Conducting survey and asking questions to customers, personal interviews, observation, experiments, questionnaires etc are the sources of the Primary data collection (Holland, et. al., 2013). In primary research collection of first hand information is very expensive in terms of money and time both. Primary data is relevant to the purpose for which it is collected. Secondary data includes that data which is already exists or collected and available for use from other sources secondary data is easily obtainable and also cheaper and less time consuming than primary data. Secondary data can be collected from internal sources and external sources. Internal sources includes  information which is already in data base maintained by the company in the form of customer records, sales reports, inventory records, financial statements etc. When data of internal sources is not sufficient then researcher will go for external sources like newspapers, magazines, Directories to find out the solutions of questions. Data collected from primary sources and secondary sources may be qualitative or quantitative. Qualitative data includes opinions and views of expert, consumers etc and quantitative data includes factual data in numeric form. For primary data research “Sampling and survey methods” are used (Holland, et. al., 2013).

1.2 Survey methodology and Sampling Frame

Survey means a brief interview or discussion with individuals on a particular subject. Survey is a mean to collect information and knowledge on a particular subject. Questionnaire, interviews and survey are the three techniques used in survey research. Survey can be done by postal, e-mail, and social networking sites. Survey is the quick way of collecting information. Purpose and nature of costumer should consider before selecting survey method (Vasi & King, 2012). Sampling is a technique of selecting a representative part of population for the purpose of statistical analysis. The methodology used for sampling is depending on the type of analysis. Sampling is done for the purpose of avoiding bias and achieving maximum precision from a given outlay of time and money. Sampling frame is a set of information used to identify sample population for statistical calculations. Sampling frame should be comprehensive, complete, accurate and up to date. Bias should be avoided. A good sampling frame helps in predicting the reaction of the population regarding the product (Vasi & King, 2012).

1.3 Sample questionnaire to be used for the purpose of research

Questionnaire includes a series of questions given which are answered in written format. There may be open ended questions or multiple choice questions (Cheung, et. al., 2016). Questionnaires of a coffee shop may ask the following questions to a consumer:

• how often do you go frequent coffee shops?
• What is your favourite coffee shop?
• What do you order for drink?
• Do you prefer large, national chain coffee shops or small, privately owned coffee shops?
• Ask for rating the quality of atmosphere when choosing a coffee shop?
• Would you like that Coffee shop also offer some snacks along with coffee?
• A coffee shop offers discount encourages consumers to go there?

These questions are generally asked by the researcher in the questionnaire. And with the use of this adequate set of information is gathered for the decision making process (Cheung, et. al., 2016).

Task 2

Introduction

Stephanie is an owner of small store in London. She wants to improve its sales so she has collected data related with sales on different price ranges for the purpose of business decision making. Stephanie wants to take business decision on the basis of measures of location and measures of Dispersions.

2.1 Calculation of Mean, Median and Mode

Mean:

Amount	Mid value(x)	No of orders (f)	fx
0.5-10	5.25	7	36.75
10-20	15	9	135
20-30	25	12	300
30-40	35	14	490
40-50	45	16	720
50-60	55	17	935
60-70	65	16	1040
70-80	75	15	1125
80-90	85	8	680
90-100	95	6	570
Total		120	6031.75
	mean	50.26458333

Median:

Amount	No of orders (f)	Cumulative frequency
0.5-10	7	7
10-20	9	16
20-30	12	28
30-40	14	42
40-50	16	58
50-60	17	75
60-70	16	91
70-80	15	106
80-90	8	114
90-100	6	120
	Median	66.5

Mode :

Amount (£)	No of orders (f)	Cumulative frequency
0.5-10	7	7
10-20	9	16
20-30	12	28
30-40	14	42
40-50	16	58
50-60	17	75
60-70	16	91
70-80	15	106
80-90	8	114
90-100	6	120

2.2 Analysis on Mean, median and mode

Mean, Median and Mode is the measures of location their value helps in suggesting a right centre from a data set, discrimination of value become must.

Mean: Mean is an average where total sum of the observations are divided by the number of observation. This the commonly used measure of location for business decision making. As per the data given by Stephanie Mean is 50.264 order which lies in the range of 0.5-10(£’000).Median: Median is the middle value of the set observations. In the present data median is 66.5 which lies between 40-50 and 50-60(£’000).  Mode: Mode is the number which is repeated most often than any other number. Here the Mode is 17which lies between 50-60 (£’000) range.  On the comparison made between mean , median and mode Stephanie should sale her product in the price range of 0.5-10(£’000) (Weygandt, et. al., 2015).

2.3 Calculation of Range, Standard deviation, Lower quartile, Upper quartile and Inter quartile range

Range is the difference between the highest and lowest values in set of observation.

Amount	Range
0.5-10	9.5
10-20	10
20-30	10
30-40	10
40-50	10
50-60	10
60-70	10
70-80	10
80-90	10
90-100	10

 

Range: Range Here the range is for 10 orders.

Standard Deviation: It measures the amount of variation in the set of data by measuring and essentially averaging. It shows how the each value of data varied from the calculated mean.

Standard deviation: - 

Amount	No of orders (f)	Mid value(x)	Xbar	x-xbar	(x-xbar)2	f(x-xbar)2
0.5-10	7	5.25	50.26	-45.01	2025.9	14181.3
10-20	9	15	50.26	-35.26	1243.268	11189.41
20-30	12	25	50.26	-25.26	638.0676	7656.811
30-40	14	35	50.26	-15.26	232.8676	3260.146
40-50	16	45	50.26	-5.26	27.6676	442.6816
50-60	17	55	50.26	4.74	22.4676	381.9492
60-70	16	65	50.26	14.74	217.2676	3476.282
70-80	15	75	50.26	24.74	612.0676	9181.014
80-90	8	85	50.26	34.74	1206.868	9654.941
90-100	6	95	50.26	44.74	2001.668	12010.01
	120					71434.54
				SD	595.2878

2.4 Quartile and Correlation coefficient:

Amount	No of orders (f)	Cumulative frequency
0.5-10	7	7
10-20	9	16
20-30	12	28
30-40	14	42
40-50	16	58
50-60	17	75
60-70	16	91
70-80	15	106
80-90	8	114
90-100	6	120
	25th Quartile	31.5
	75th Quartile	102.25

The interquartile range is (difference between two quartile) = 102.25-31.5= 70.75 (Francis, et. al., 2016)

Correlation of coefficient:

Sales (x)	Temperature (y)		x2	y2
20	320	6400	400	102400
24	411	9864	576	168921
11	192	2112	121	36864
17	259	4403	289	67081
9	170	1530	81	28900
15	243	3645	225	59049
25	430	10750	625	184900
			Correlation  coefficient	0.989869

Analysis: Here the range is for 10 orders. Rang is calculate to take quick idea of variability. Quartile is used for measuring dispersions and helps in making comparisons within and between data sets. Correlation Coefficient present between the two variables where both variables are related with each other in some way. There are three degrees of correlation one is perfectly correlated where both variables are increasing in linear fashion second is partly correlated where both variables make cluster around a straight line they are not going straight. Third one is uncorrelated where no relationship exists between the two variables. Correlation may be positive or negative. Correlation is always within the range of -1 to +1. Correlation coefficient is 0.98986.Here the correlation coefficient is in the range of 0 it denotes no linear correlation between two variables (Francis, et. al., 2016).

Task 3

Graham Consultants Limited provides their data related with sales, cost and profit to the management consultants related with previous ten years.

3.1 Following line graph along with trend line shows the relationship between sales, cost and profit of the organisation.

Sales from 2000 to 2010

Year	Sales ('000)
2000	165
2001	185
2002	225
2003	235
2004	315
2005	335
2006	265
2007	245
2008	245
2009	255
2010	295

Analysis: - It is seem that after 2000 there is increase in the sales but after 2005 it starts declining and then from 2009 it shows upward trend.

Cost from 2000 to 2010

Year	Cost ('000)
2000	135
2001	125
2002	145
2003	145
2004	175
2005	175
2006	165
2007	145
2008	175
2009	155
2010	155

(Markovi, et. al., 2013)

Analysis: - As the year passes the cost having fluctuating nature as but overall it shows incremental trend. The cost in 2010 get increased subsequently as compare to 2000.

Profit from 2000 to 2010

Year	Profit ('000)
2000	45
2001	65
2002	85
2003	95
2004	145
2005	165
2006	105
2007	105
2008	75
2009	105
2010	145

Analysis: - From 2000 profits shows incremental trend and it goes till 2005 but after that there is drastic fall is noted down. But after 2008 it back on track and showing incremental trend.

3.2 & 4.1 Trend lines using spreadsheets for sales, costs and profit showing forecast of 3 years for each.

Trend line: 

3.3 Presentation on sales, cost and Profit

Sales: Sales is an activity of business of selling product or services to consumer.  In the data provided by company their sales were increases from the year 2000 to year 2005. In year 2004 and year 2005 sales rises at a higher rate than previous one.

Cost:  cost is an amount in terms of money which is spent by a company to create or offer a product or service. From the year 2000 to the year 2010 there is an increase in all costs related with services. As sales increase cost also increases, but during the year 2002-2003, 2004-2005, 2009-2010 there was no change in cost in relation to increase in sales (Majumdar, 2014)

Profit is that financial resources benefit that is realized from a business activity after deduction of all cost from the total revenue. Company is regularly earning a good profit due to increase in sales and effective control on costs. In the year 2005 Company had earned highest profit in the year 2005 which was 165 (Majumdar, 2014).

3.4 Formal report for regional manager

Introduction

Sales, costs and profits all three factors are interlinked with each other. As costs get incurred in order to produce product that get utilised for making sales and with the help of sales adequate revenues get earned. Below is the discussion is made over relationship among these three.
Forecasting is a self assessment tool for the company. The main aim of forecasting is to keep eye on each and every activity of production. Graphs and trend lines are used in forecasting future. Forecasting should also consider external factors like seasonality, state of the economy, prevailing competition in the market, taste and preferences of consumer. Internal factors of forecasting include labour problems, availability of working capital and inventory, price policy, production capacity and availability of distribution channel. Sales, cost and profit are interrelated with each other cost has the impact on profit. As cost increase the amount of profit decreases. Trend line on graph shows relationship between sales, cost and profit.  Trend line is also used for the forecasting. Trend line of sales goes up and the trend lines of cost go up but relatively slower speed than sales. Profit increases regularly with an increase in sales (Djokovic, 2013). Apart from this, on the basis of past information we saw that company is enjoying good profit margin. Company can increase its sale between  300-350 and cost of the product will be between 150-200 and profit will be 150 or more. Trends on the graph show positivity in reference to future. Company should try to maintain its cost stable so that it can enjoy more profit in future.

Conclusion

All three factors having adequate relationship among them as all of them put adequate impact on each other. When costs get increased there is adequate increase in the profit share as there is increase in their sales.

Task 4

Introduction

QWM Investments Limited started a project in which various activities are available to perform. Business activities include Preparation for the project, business planning, recruitment and selection of staff, installation of machinery, training, assessment, continuous testing, policy documentation and appraisal.

4.2 Calculation of project Duration and critical path

Start + A + C + H + K + L +  End = 6+38+4+22+22 = 92 days
Start + A + B + D + J + K + L + End = 6+4+17+11+22+22 = 82 days
Start + A + B + I + K  + L +  End = 6+ 4+ 12 + 22+22=66 days
Start + A + B + D + E + F + G +  K + L + End = 6+4+17+6+11++11+22+22 = 99 days
Company should adopt third method for completing the project because this is the only shortest path available as per CPM technique. It takes only 66 days to complete a project. The other four paths take 92 days, 82 days and 99 days respectively to complete (Djokovic, 2013).

Critical path of the project is:

Start+ A+B+D+E+F+G+K+L+ End =6+4+17+6+11+11+22+22 = 99 days.
99 days are total time duration of critical path of this project where maximum activities are carried. This is the maximum time duration which the project can take to complete.
Thus the CPM method helps in organising the large and complex projects and it also enables in calculating the float of each activity. CPM also helps the project manager in reducing the project duration time. CPM also helps in reviewing the activities carried out as per the schedule. CPM also optimizes the efficiency of manager by allocating resources appropriately and also it reduces cost of the project. I provide chance to respond against negative risks (Djokovic, 2013).

Above figure shows the critical path of the project carried out by the company.

Critical Path method: CPM calculates the longest path from the start of the activity up to the end point of the plan. Critical path method is a project modelling technique which helps in differentiating planning and scheduling of the project. Planning of a project includes identifying the activities to be accomplished and scheduling means preparation of time schedule for each activity involve in the project or activity.CPM technique is also determine the duration of completion of any project or activities.CPM identify and measures the longest path of the planned activities. A project may have several critical paths. CPM technique helps in identifying logical end points in a project and identifying the series of activities which are carried out to complete the project (Laddie & Blaskowski, 2012). CPM technique has many benefits. CPM ascertain the time taken by project to complete, CPM helps in deciding the sequence of  activities carried out in the project, each activity of the project is interdependent on each other.CPM is also used as a controlling tool for the management. CPM finds the critical elements in the projects so that management is ready to give its due attention to that critical element of the project and find out solution for that.CPM helps in preventing the errors in the project. CPM helps in preparing detailed plan for the project. Besides these benefits CPM also has some limitations.CPM only assumes the time of completion of each activity it does not set in real time practice. CPM time estimates are not based on statistical analysis tool. CPM is not a proper controlling device because if there will be a simple change introduced in the planned activity then it will change the entire structure of the projected activities. There is lack of flexibility in CPM technique so it is not a dynamic control device (Laddie & Blaskowski, 2012).
Here, QWN prepares a schedule of activity which includes 13 activities.

Task 5

Introduction

Local Construction Company is planning to invest a new project. The company have two projects to be available for investment to the company. Each project cost 3, 00,000£ but the return from these investment is different and the time period for the return of investment is 5 years for both the investments. Board of the company compare both the projects on the basis of payback period, Net Present value (NPV) method and Interest rate of return (IRR) method. Board assumes 10% discount rate.

4.3 Calculation of payback period, NPV and IRR and brief report with recommendations

Payback Period: Payback period is the time period within which initial cash outflow will be recovered from the cash inflows generated by the investment. It is one of the simple investment appraisal techniques. Cash flow from project may be even or uneven. Where cash inflow is uneven then cumulative net cash flow will be calculated for each period (Zabukovec & Jakli?, 2015). Formula of calculating payback period is:

Payback Period = No. of years before first positive cumulative cash inflow+ (absolute value of last negative cumulative cash flow)/cash flow in the year of the first positive cumulative cash flow 

Year	cash flow	cash flow	CUMULATIVE CASH FLOW OF PROJECT SUPER	CUMULATIVE CASH FLOW OF PROJECT SONIC
Investment	-300000	-300000	-300000	-300000
1	55000	220000	-245000	-80000
2	100000	50000	-145000	-30000
3	110000	50000	-35000	20000
4	95000	20000	60000	40000
5	40000	20000	100000	60000
	payback		5.83 years	5.5 years

Payback period of project super is 5.83 year and in project sonic payback period is 5.5 years. Considering this, company should adopt project sonic because investment is early recovered than project super.
The payback period method measures the available risk in the investment. Payback period helps in ranking the project on the basis of recovery period of cash flow (Gong, et. al., 2016). 

Calculation of NPV and IRR:.

Year	cash flow of project sonic	cash flow of  project Sonic
Investment	-300000	-300000
1	55000	220000
2	100000	50000
3	110000	50000
4	95000	20000
5	40000	20000
NPV	$4,556.72	$4,515.23
IRR	11%	11%

 

Net Present Value Method: Net present value is a capital budgeting technique which shows the difference between the present value of cash inflow and present value of cash outflow. NPV is used to analyse the profitability of an investment or project.  NPV may be negative or positive or zero. A positive net present value indicates that the earning from the investment in project exceeds the anticipated cost. 

Internal Rate of Return method (IRR): Internal rate of return is a discount rate that makes the net present value of all cash flow of a project equals to zero. Internal rate of return shows expected growth rate of a project. Those projects having higher IRR value provides a better chance of strong growth.IRR should be used as guideline for calculating whether it is good to proceed with a project if the IRR is greater than the minimum required rate of return (Gong, et. al., 2016).

On the basis of calculation of NPV Calculation Company can adopt Project Super. Both projects earn similar internal rate of return so on the basis of IRR Company may adopt any one project between the two. Payback period method is considering present value of money so company should make its decision on the basis of NPV method and IRR method (Gong, et. al., 2016).
Overall the project helps in learning the ways of collecting data, calculating measures of dispersion and location and analysing projects on the basis of NPV, IRR and payback period and about critical paths of available in a project (Gong, et. al., 2016).

Conclusion

It is concluded that there are various sources through which data is gathered and these sources are segregated into two parts such as primary source and secondary sources. In order to gather the data survey is conducted with the use of questionnaire. In order to analyse the data effective measures of dispersion get utilised such as mean, median, mode, quartile, etc. In order to evaluate or make decisions all numeric information is presented in the form of bar graphs and charts. Adequate techniques get followed in order to perform activities in systematic manner as well as complete them timely such as action plan and network diagram. For investment related decisions investment appraisal techniques get utilised as it helps in comparing or evaluating the available projects.

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