BY: MOHAMMAD WAHID ABDULLAH KHAN
Summary: The decision process can also be used to screen, rank or select various kinds of problems hazards, communities or watersheds in need, information gaps, etc. as a step toward prioritizing where investments of time or resources should be made
Introduction
This article investigates a common theme to view business decisions as economic cost/ benefit trade-offs, intended eventually to create value for the shareholders. Up to this point, but, I have spotlight that to understand these processes mainly on the economic benefits achieved from investing in and operating a business.
The decisional framework used all along worried the interrelationship of investment, operations, and financing. We experiential that, over time, most management decisions cause cash movements in one form or another. Clarifying the decision situation involves significant what decision is being made and why, as well as its affiliation to other decisions previously made or expected. If risks are being ranked, why? How will the information be used in future decisions? If a change in strategy or management is under deliberation, what are the key drivers of the change and what are the original strategy objectives? What is the common capacity of different under reflection and why? Ahead a clear and ordinary thoughtful the question is frequently harder than it seems, but is solution to working on the answer.
Management decisions should generate economic value for the shareholders by making After-tax results that are top than the cost of all the sustaining capital inputs. This point was made continually throughout the book, and we’ll now take up in detail the main aspects of the cost portion of this trade-off.
Tasks and errands should be clearly recognized, including classification of the eventual decision creator. Stakeholders and key scientifically experts are identified, and their function in the decision process clear. It is also significant to recognize the constraints within which the decision will be made. These might include
Investment Decisions:
Each and every person can be particularly differentiated on a variety of parameters. Their investment decisions depend on the diverse attributes. There are so many factors that control their investment decisions. Each has their own requirements. So, consequently they take decisions.
One of the most vital long term decisions for any business relates to investment. Investment is the achieved or creation of assets with the objective of making gains in the future. The capital investment decisions can also be termed as capital budgeting in finance. The purpose of the capital investment decisions includes allocation of the firm’s capital funds most successfully in order to ensure the best return possible. Evaluating the projects and allocating capital depending on the necessities of the projects are the most significant aspects of capital investment decisions.
I have tried to recognize through my article that minimum values for investments had to be set high enough to recompense both for the project’s specific risk and for the opportunity loss of forgoing the returns from any different uses of the funds invested. Such different investments in the company’s normal actions or in new initiatives were similarly assumed to sufficiently recompense both shareholders and lenders for providing their capital.
The decision of project position plays important role in the decisions of capital investment. Depending on the various projects the firm is having at a certain period of time, the firms prioritize the projects. The position of projects depends on how much a project will return and which project will be able to add maximum value to the business.
There are various procedures that give the judgment of the return of the firm over various investment projects. In order to determine the value of a particular project, three most famous methods are - IRR methods, net present value and payback method. These methods are applied while taking decisions on capital investment.
Security or safety is also very important in investing. As if someone is going to invest their hard money then absolutely he will expect good returns. The protection of the funds invested should be the first priority of any investment and then the returns should be in ratio to the level of risk taken.
The long-term working capital, facilities, technology, etc., these investments are usually backed by the long-term capital configuration of a company. This configuration may employ different degrees of leverage and a whole range of financial instruments, and it may change over time as the company’s business patterns expand. The important point is that the long-term pool of funds is the applicable source of funding not any exacting addition of financing which the company may be using at a given point in time to augment its capital configuration. Consequently, the biased cost of capital measure, which is the most significant criterion of cost in the capital budgeting and investment analysis framework.
Operating Decisions
In this article I have created a significantly important positive function for operations management and financial equivocation. Also I have presented that operations management decisions and financial equivocation are entwined, and we advance a framework that can identify their collective special effects on investors' wealth. That:
1. Firms (publicly traded corporations) will optimally hold adequate risk less working capital to minimize the cost of obtaining non-financial inputs, and the magnitude of this cash holding depends on operating details, and
2. Operations management and financial hedging can lower firms’ cash requirements, and boost productivity, defined as the wealth created in the firm per dollar of invested capital. Productivity-enhancing practices - by "freeing up" some of the firm's cash - can maximize the investors' wealth. We show that these results obtain because firms’ contracts with many of the providers of non-financial inputs are not
Operating decisions is generally understanding of costs. Between cost distinctions, “relevant costs” is broadly used for operating decision. Relevant costs are the future, incremental cash flows that result from a decision. Relevant costs specifically do not include sunk costs, costs that have been incurred in the past, as nothing we can do can change those earlier decisions. Relevant costs are avoidable costs because, by taking a particular decision, we can avoid the cost. Unavoidable costs are not relevant because, irrespective of what our decision is, we will still incur the cost. Relevant costs may, however, be opportunity costs. An opportunity cost is not a cost that is paid out in cash. It is the loss of a future cash flow that takes place as a result of making a particular decision.
However, operational funds actions, such as increases or decreases in trade credit both used and comprehensive and hang in cash balances and accruals as engage costs, both in the form of out-of-pocket accuses and opportunity costs. For example, a future decision to take obtains discounts capacity involves significant economic benefits.
Cash management decisions to minimize bank balances can reduce the opportunity costs natural in idle funds. In verity, there are innumerable circumstances in which near-term decisions can cause or reduce the cost of employing funds, as these decisions are often directly linked to incremental a source that entails exact costs.
Financing Decisions
There are costs connected with achieving financing and compensating contributors of different foundations of funds, both short-term and long-term, which must be measured by management in making any financing decision
The financing decision must consider several factors. Some of these factors include:
1. Elasticity - Today's financing decisions will pressure tomorrow's financing decisions. If the business expects to move up capital in the future, it can not maximize its use of debt today. We need to provide a reduce so we can have elasticity with future financing decisions.
2. Threat - Financing with the use of debt will enlarge threat. There is a limit to how much debt we can use to finance our trade. Too much debt can eventually lead to insolvency.
3. Revenue - Financing can authority earnings and thus involve return on equity. If we are anxious about returns to equity shareholders, then our financing decision will need to be adjusted. Income is also influenced by our ability to take advantage of tax deductions for interest on debt.
4. Organize - If we have concerns about organize over the organization, then we have to believe how financing will change organize. Financing decisions are connected to also ownership (equity) or creditors (debt).
5. Timing - Financing decisions need to be timed to take benefit of the marketplace. What category of securities should be sold? When should they be sold? What extent of maturity should be used for debt financing?
One of management’s compulsions is to develop an outline of funding that both matches the risk/reward profile of the business and is adequately personalized to meeting the evolving needs of the company. At the same time, the use of long-term funds entails meeting the expectations of creditors, and meeting or rather more than the opportunity of the providers of equity funds.
Conclusion: special decisions may have different outputs. In some cases, the output may be the choice of a preferred another from among a set of candidates. In others, it may be the ranking of alternatives in a set. Otherwise, the decision process may simply serve to screen out improper alternatives or identify acceptable ones. It can be used to calculate individual projects or initiatives, or to build up and evaluate sets of projects a lot termed strategies, packages or portfolios,
About the Author
MOHAMMAD WAHID ABDULLAH KHAN
S/O MOHAMMAD SAADULLAH KHAN
Mr. Mohammad Wahid Abdullah Khan is the Project director of “Max Textiles Ltd”.Mr. Wahid has been in accounting field since 1999. Prior to that he had completed over ten (10) years in various fields of Business like - Accounts, Finance, Internal & External Audit, project budgeting and project costing related positions in some of the largest group companies & the join venture companies in Bangladesh.
He consults about small- medium business owners and services professionals, business consulting service and project process. He is most experience in Financial Risk Assessment, Financial analysis, Financial Advising and Project Cost Analysis. He has published more than 200 articles & case study in different international journals. Such as Business, finance, personal finance, international finance, auditing, Risk assessment topic and performance & industrial related,
Mr. khan’s most popular articles is “WAK” Model - The way of best solution for an organization internal audit process,( 1st,2nd,& 3rd part) “WAK” Model”- for successful financial resource , “Wahid khan”- cost analysis, Wahid theory – the key of dynamic series for successful financial consulting, Wahid techniques – the Significance and dependability manner for Performance audit(1st,2nd,& 3rd part) Wahid’s Opinion - non-conformity among the performance audit and financial audit, Wahid’s view- The cogent task and the confront of financial/economic analysis in the modern business decision making , Wahid’s outlook - The Business Financial Analysis Should Be Included several required Documents with the analysis report or plan, WAHID’S JUDGMENT- difference strategic plan as opposed to an operational plan ,WAHID’S METHOD– the charismatic and fruitful guideline for financial investment decision making ,WAHID’S MEASURE - the influential and evaluated of similarity between profit & non- profit business planning & Wahid’s philosophy- The examined & careful consideration of strategic planning against business planning,& PPBS MODEL,
He has consulted with more than 30 service & product companies, in recent years Mr. khan has been spending most of his professional time for financial consulting , Mr. Wahid is the owner of “WAM Associates” and “WAK business solutions”
Source & Published: articlesbase.com
N: B- This services has given by Mohammad Wahid Abdullah khan
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