Imagine You Are A Management Representative In The Company

Qu 1imagine You Are A Representative Of Management In The Company You

Imagine you are a representative of management in the company you have selected for your Week Six assignment and you must make a capital budgeting decision. The decision is to implement a new computer network system to decrease the time between customer order and delivery. The cost will be 10% of last year’s profits. You are charged with describing the important considerations in the decision-making process to upper management. In your response, be sure to include the following: A description of the important factors, in addition to quantitative factors, that were considered when making this capital budgeting decision.

An explanation of how these factors are significant to the company. A summary of how you will determine the criteria to rank capital budgeting decisions and whether some criteria are more important than others. A calculation of the proposed return on investment based on criteria you select and justification for that ROI.

Paper For Above instruction

When evaluating a capital budgeting decision such as implementing a new computer network system, management must consider a variety of factors beyond simple financial metrics. While quantitative considerations like upfront costs, expected savings, increased efficiency, and potential revenue growth are central, qualitative factors also play pivotal roles. These include the impact on organizational workflow, employee productivity, customer satisfaction, technological compatibility, and future scalability.

In the context of our chosen company, these qualitative factors are significant because they directly influence long-term operational effectiveness and competitive positioning. For example, a faster customer order-to-delivery cycle can enhance customer satisfaction, leading to increased loyalty and market share. Additionally, an improved network system might reduce system downtime and maintenance costs, thereby positively impacting overall productivity and cost structure.

To effectively prioritize capital projects, the decision-making process involves establishing clear criteria that consider both financial returns and strategic alignment. These criteria include return on investment (ROI), payback period, strategic fit, risk level, and technological compatibility. However, some criteria are more critical than others; for instance, ROI and strategic fit often hold greater weight because they directly correlate with the company’s growth and competitive advantage.

Applying these criteria, we can calculate the projected ROI for the new network system. Suppose the project costs 10% of last year's profits, which amounted to $5 million. The investment is thus $500,000. If the expected benefits include an annual reduction in delivery time leading to increased sales and reduced costs, resulting in an estimated annual benefit of $125,000, the ROI would be calculated as:

ROI = (Annual Benefits / Investment Cost) × 100% = ($125,000 / $500,000) × 100% = 25%

This ROI indicates that for every dollar invested, the company expects to gain 25 cents annually. Given a favorable ROI and alignment with strategic goals, management might prioritize this project. The justification for this ROI stems from the tangible benefits accrued through improved customer satisfaction, increased efficiency, and future scalability, which collectively support the company’s growth trajectory.

References

• Brigham, E. F., & Ehrhardt, M. C. (2016). Financial Management: Theory & Practice. Cengage Learning.
• Ross, S. A., Westerfield, R. W., & Jaffe, J. (2019). Corporate Finance. McGraw-Hill Education.
• Gallo, A. (2014). A Refresher on Return on Investment (ROI). Harvard Business Review. https://hbr.org/2014/07/a-refresher-on-return-on-investment-roi
• Damodaran, A. (2012). Investment Valuation: Tools and Techniques for Determining the Value of Any Asset. Wiley Finance.
• Investopedia. (2020). Capital Budgeting. https://www.investopedia.com/terms/c/capitalbudgeting.asp
• Chen, S., & Miskin, L. (2011). Strategic Investment Decisions in Information Technology. Journal of Business Strategies, 28(2), 105-127.
• Heath, R. (2018). Evaluating Capital Budgeting Decisions. Strategic Finance, 100(4), 34-39.
• Marshall, R. S. (2015). The Impact of Technology on Customer Satisfaction. Journal of Service Research, 18(3), 310-322.
• Corporate Finance Institute. (2023). Capital Budgeting Techniques. https://corporatefinanceinstitute.com/resources/knowledge/finance/capital-budgeting-techniques/
• Seitz, A. (2019). Financial Decision-Making in Modern Business. Oxford University Press.