Business Decision-Making
Business
Executive Summary 2
1.1 Market Research Plan for UK Launch 2
1.2 Research Methodology 3
2.1 Employee Salary Analysis and Calculation 5
3.1 Sales Projection 6
4.1 Management Information System 8
Conclusion 10
Executive Summary
Effective decision making is considered as an important factor in identifying a specific problem, analyzing possible solutions, and evaluating possibilities in order to achieve a long-term goal. In this discussion, a case of a new product aiming to enter a new market is in the process of deciding whether to push the plan through or not based on the results of the market research. The product to be introduced in the new market is a new innovation in anti-wrinkle and anti-aging technology. The beauty industry is a multi-billion dollar business composed of cosmetic products aiming to create an impact towards the end user’s satisfaction on physical aesthetics. Kimberly Aschaueran in particular is an avid user of such products, but her desired results and value from buying anti-aging creans was not satisfied. Because of her dissatisfaction with the current products out in the market, Kimberly decided to develop her own anti-aging product referred to as “facelift in a bottle”.
The product is of Kimberlys personal invention, which dissolves the wrinkles with continuous application. The main selling point of the product is the cost, which is less expensive as compared to the mainstream products available in the market. The product was marketed locally in a jar that appears like a face cream and each container is worth $24.99 and being sold online and in 17 stores in Florida. The main decision-making aspect of Kimberly’s business is whether or not it is feasible to expand the business in UK. One of the best tool to for decision-making is to conduct a market research in the target region by collecting relevant data both secondary and primary. The market research will encompass appropriate methodology and sampling technique using a 10-item questionnaire. The other part of the decision-making process is geared towards identifying cost of salary in relation to the sales projection outcome. Lastly, the discussion will also look into the importance of management information system in the decision-making process presented with examples and how the concept can be put into practical application.
1.1 Market Research Plan for UK Launch
Kimberly Aschaueran is an avid user of anti-aging products, but her desired results and value from buying anti-aging creans was not satisfied. Because of her dissatisfaction with the current products out in the market, Kimberly decided to develop her own anti-aging product referred to as “facelift in a bottle”. The product is of Kimberlys personal invention, which dissolves the wrinkles with continuous application. The main selling point of the product is the cost, which is less expensive as compared to the mainstream products available in the market. The product was marketed locally in a jar that appears like a face cream and each container is worth $24.99 and being sold online and in 17 stores in Florida. The main decision-making aspect of Kimberly’s business is whether or not it is feasible to expand the business in UK.
The research plan begins with the collection of secondary and primary data. For the primary research, the data will come from the computed ressults of the responses from the questionnaire. The other form of primary data gathering will come from asking the consumers directly about their opinion and first impressions about the product. The survey in particular will not require the consumers to use the product, but rather refer to the responses from the questionanire to determine what the consumers are looking for in an anti-aging cream and their expectations. Kimberly is planning to expand the business in the area, but it is important to first discover the UK consumer’s preferences to have an overview of the how the product will fare in the market.
For the secondary data, the important information to consider gathering are demographics and pricing. When talking about demographics, it refers to information such as consumer age group, buying power, lifestyle, leisure, values. It is important to remember that the secondary data in market research should look who will buy the product. In this sense, the market research plan will have to determine whether the product appeals to the majority of women of is there a certain percentage that are willing to make the first try. In addition, buying power is greatly considered for products that are being first introduced in the market. This is because not all potential consumers may have the capability to spend money for such products and how the product competes with the other brands within the same price range as the anti-aging cream.
1.2 Research Methodology
The research design to analyze the intended market for the anti-aging cream is descriptive research where the fundamental questions of who, what, when, where, and how will comprise the important variables. The type of information to gather for the market research is both primary and secondary. For the primary research, a survey will be conducted to determine what the consumers feels about the product. The survey questions for the survey will consist of ten questions in a form of statements that the consumers will answer through a rating system. A likert scale will be adopted for the survey where the respondents will rate each statement. The responses will be analyzed and interpreted using descriptive statistics. The survey questionnaire will be in electronic form and will be sent through email. Selecting respondents for the survey will be in random to avoid biases (marketresearchassociation.com, 2012).
The survery will target 100 female respondents targeting a response rate of at least 80%. There will be 120 emails to be sent in the respondents and the emails will include the attached survey form that respondents will have to accomplish and send the form back for analysis. The advantage of utilizing the described approach particularly the targetted number of respondents is to ensure that the results can be resplicated and applied to future researh. In addition, the selected methodology is simpler and cost effective for the busines considering that the cost of the startup is possibly limited. Furthermore, the sampling technique is more effective and convenient because it consumes less time to distribute and collect data as compared to having researchers to do a field work. More importantly, the selected methodology is less complicated particularly in the process of analyzing and interpreting the collected data. The end result of the chosen method will benefit the business particularly in making the decision to continue with the expansion.
2.1 Employee Salary Analysis and Calculation
Given the values for the salary of 20 IKAE employees as follows;
The results of the given variables based on descriptive statistical analysis suggests that the mean value for the salary of the 20 IKEA employees shows at £312.63. The standard deviation on the other hand shows 115.293, which also indicates a median value of 285. The results of the above statistics is relevant for the business particularly in conducting a market research because it presents a primary tool to synthesize the raw data collected from the survey. Furthermore, the calculated values represents the positive or negative responses from the survery in numerical form, which is easier to interpret and utilize for decision-making. Drawing conclusion using quartiles, percentiles, and correlation is realtively useful for the business because it represents the relationship strength of each given variable. For example, to determine how price is related to sales volume can be identified using correlation method. The end result of the calculation process will determine whether an apparent increase in product price will have an effect on sales volume.
3.1 Sales Projection
The following data relates to the no. of facelift bungees sold within the US:
Based on the above graph samples, the most appropriate method to use to forecast the future sales in the UK market is the second graph that includes a trendline. It is relatively important for the business to determine its future sales by looking at how the previous and the present sales data creates the path for the future possibilities of the product in the UK market. If the results of the trendline appears to be declining, it means the sales future of the product in its intended market will not feasible. It is also imperative for the business to determine its future trends in order to create decisions and strategies that will create opportunities to avoid a declining output.
4.1 Management Information System
In a successful organization, management information system plays a pivotal role in the decision making process in the three important areas of management such as strategic, tactical, and operational. In terms of strategic management MIS is important in developing the overall organizational policies, goals, and strategies. It also aid in the effective monitoring of strategic performance of the organization particularly in deciphering the economic, political, and competitive environment of the business. For the tactical management, the business management units are able to develop short or medium range plans on the areas of budgeting, schedule, and procedures. Tactical management is relatively important in allocating resources and monitoring performance for each sub-units of the business including other divisions and project teams. As for the operational management, the members of the self-directed teams and managers are able to develop short-term plans such as weekly budget and scheduling, which encompasses the direct use of resources and monitoring of other tasks (onlinecampus.bu.edu, n.d.).
Information systems in particular helps in deploying information within the organization through a combination of planned procedures that are appropriate for organization’s structure. The output from the information system can be divided into two segments one is the routine reports and document transactions that conforms with the organization’s normal operational conventions. In a simpler term, management information system can be described as a platform in disseminating information to be displayed to the managers in a form of report. The information contained in the reports encompasses the results of the day to day operations and performance, which is the basis for the managers in the decision making proces. The concept is connected with the use of information technology tools such as decision support system, executive support system, and specialized processing system that are being used by the business together technology-based applications (Kaplan Financial, 2012).
An example of the effective tools for decision making applied with the concept of management information system is the use of network diagram. The below table suggests the activities and the preceding activities that can be illustrated using a network diagram.
Highgate Hotels is a small family owned hotel chain, consisting of 25 bedrooms in four hotels throughout the north of England. The owner of Highgate Hotels wishes to expand the hotel business into the south east of England in anticipation of the 2014 tourist season. The construction of the hotel will begin in January 2013 and cost of building the hotel is expected to be £190,000. The assets relating to this project are depreciated over the project life at 10% per annum on a straight line basis. You have been asked by the owner of Highgate Hotels to report on the financial viability of this project using the accounting rate of return and the NPV techniques. The company’s weighted average cost of capital is 10%.
2012 £30,000
2013 £30,000
2014 £30,000
2015 £30,000
2016 £30,000
2017 £50,000
2018 £80,000
2019 £100,000
Considering the variables and the figures provided by the the owner of Highgate Hotels, the accounting rate of return for the business was calculated to determine the amount of profit that can be expected based on the amoung of investment (accountingexplained.com, n.d.). The formula to calculate ARR is ARR=average accounting profitaverage investment. In the case of Highgate Hotels, the average accounting profit from 2012 to 2019 is at £47,500. With and initial investment of £190,000, the ARR would be 0.25 or 25%. The ARR value was obtained using the following formula:
Calculate the sum of our returns:ΣReturns = 30000 + 30000 + 30000 + 30000 + 30000 + 50000 + 80000 + 100000ΣReturns = £380,000.00
Calculate Average Returns:
Average Returns = $47,500.00Calculate Average Rate of Return (ARR):
ARR = 0.25as a percentage, ARR = 25%
The next set of values to determine is the NPV, which stands for net present value or the difference between the cash inflow and the present value used in capital budgeting in order to determined profitability of an investment. Given that the initial investment is at £190,000 with an annual depreciation rate of 10%, project life of 8 years, and the cash flow presented earlier, the net present value for Highgate Hotels would be £39,650.69, whilst the present value of the expected cash flow would be £229,650.69. The results of the NPV calculation appears to be greater than the initial capital investment, which is a presents a positive position for the investment. In addition, the resulting calculation also indicates that the pursued investment can be optimal. However, even if the projected NPV output appears positive, the indicated cash flow are estimations that can either go lower or higher, which is likely to affect the outcome of the NPV after the project life cycle. The projected output for NPV was obtained using the prescribed formula NPV = ∑ {Net Period Cash Flow/(1+R)^T} - Initial Investment. In the given example formula, R represents the rate of return and T represents the number of time periods. Based on the results of the ARR and NPV calculations it is apparent that the decision to expand the business will yield positive outcome for the Highgate Hotel. Furthermore, the example scenario exhibits the financial side of decision-making practices particularly when putting up investments and identifying the advantage and disadvantages in the planned investment.
Conclusion
Business decision-making encompasses several considerations, which can be justified with the use of effective tools. In the case of the anti-aging business that is planning to put expand to new markets, one of the most important steps in the decision process is to determine whether or not the targeted market would be feasible for the business and the best tool to help the management to decide is to conduct a market research. The methodologies involved in market research includes conducting a survey in which the business can be given an overview of what the prospect market is looking for and whether or not the new product will likely to be embraced by the consumers. Another important decision-making tool for the business is evaluating and analyzing financial data with the use statistical method. In addition, financial decisions particularly in the areas of investment can be optimized with the use of appropriate accounting methods to project the profitability future of the business.
References
Accountingexplained.com,. Accounting Rate of Return (ARR) Formula | Examples. Accountingexplained.com. Retrieved 18 January 2016, from http://accountingexplained.com/managerial/capital-budgeting/arr
Kaplan Financial,. (2012). Management Information Systems. Kfknowledgebank.kaplan.co.uk. Retrieved 18 January 2016, from http://kfknowledgebank.kaplan.co.uk/KFKB/Wiki%20Pages/Management%20Information%20Systems%20(MIS).aspx
Marketresearchassociation.com,. (2012). Market Research Methodology | MarketResearchAssociation.com. Marketresearchassociation.com. Retrieved 18 January 2016, from http://www.marketresearchassociation.com/methodology.php
onlinecampus.bu.edu,. Management Information Systems and Decision-Making: An Overview. Onlinecampus.bu.edu. Retrieved 18 January 2016, from https://onlinecampus.bu.edu/bbcswebdav/pid-843933-dt-content-rid-2221759_1/courses/13sprgmetad715_ol/module_03a/metad715_m03l02t02_managementinfosystems.html
