Business Decision Making

Task 1-Report

Since your authority has assigned us with making efforts regarding the new launch location
for DG fashion, I am grateful to let you know that I have completed all the important
activities required to find the location that best suits the new launch location project. This
new project that concerns opening new outlet will add greatly to the companys success. So,
after making sufficient & sincere efforts, we have selected Wembley Central as our new
launch location.

Wembley Central is the downtown of Wembley High Street & is an ideal location. It will
take you for about 10-minute walk from the Wembley Central Tube Station. This location
can be our expected one, since when it comes to fashion, buyers generally buy from the
central area or the downtown. As a result, more people will get attracted. Despite being in the
central area, this location will ensure availability of sufficient labor & technology. Thought
the costs associated with structuring will be a bit higher, the benefits from Wembley Central
will outweigh the costs.

Throughout the report, the process of research has been discussed in detail including
statistical, financial, & managerial measures.
AC (1.1)-Plan for the collection of data for Wembley Central:

SinceWembley Central has been chosen as the new launch location, we have to analyze &
implement the necessary actions to meet our expectations. In order for an appropriate
decision making process, sufficient data is necessary (Adair, n.d.). We have collected both
primary & secondary data & created a database which will be helpful for drawing meaningful
conclusions.

Primary data refer to the data that are collected through making in-person investigation,
interview or survey etc. The sources for the collection of primary data are the local people,
local shop owners etc. The collection of primary data made us create survey questionnaire &
conduct the survey among the chosen groups of people. The survey took us one week. We
have also done a research on the degree of competition in that location to take necessary steps
to gain sustainable competitive advantage.

Secondary data are meant to be second-hand data, i.e. secondary data are the data that can be
collected from the sources where the data were used for some other purposes (Clements and
Gido, 2012). For the collection of secondary data, we have gone through several articles,
journals, newspapers, previous research reports, government documents & browsed internet.
Secondary data are easily accessible & available.
AC (1.2)-Discussion associated with Survey Methodology & Sampling
Method:
For the ease of comprehension of the market research for new launch location Wembley
Central, we have separated primary data research from secondary data research, & discussed
about them accordingly.

Methods followed for the research:

Quantitative Method:The research method used for analyzing quantitative data that can be
expressed in numerical terms is called quantitative method.
Qualitative Method: The research method that seeks to analyze the quality, i.e.
characteristics, & to present data in descriptive form is called qualitative method(Mayer
and Steneck, 2012).

Methods for the collection of data:

For the collection of primary data, we have done the followings;

First-hand Investigation;
Interview;
Survey through questionnaire;

To collect the secondary data, we have gone through the followings:

Journals;
Newspapers;
Previous Research Papers;
Browsing Internet; etc.

Sampling Method:

Sampling is the way to take a portion of the total population that will as a whole represent the
population. Sampling is done because of our inability to collect data from the entire
population.

Sampling frame refers to the area or span within where the survey is conducted. The
sampling frame for our survey was the downtown area of the Wembley Central Tube Station.

Sampling size generally means the size of the data itself. The sample size for our research is
300.
Sampling method is the process through which a researcher or anybody takes sample from
any population. The Random sampling method has been used for our research because of its
ease & less error.

AC (1.3)-Design of the survey questionnaire:

For conducting the survey to collect primary data, we have prepared the following
questionnaire:
The results from the survey are presented through graphs:
M1-explanation of Coefficient of Skewness:
When it comes to determining how the data are distributed, researchers most often use
Coefficient of Skewness. It is a tool, used in statistics, that helps to interpret the shape of the
data distribution (Doumpos, Zopounidis and Pardalos, 2012). This tool provides us with a visual
measurement of the set of data. If we mingle this in our context, we can know how many
people will be spending on our products. Positive skewness shows us that more people will
be willing to but our products, whereas, negative skewness shows that less people will buy
our products.
Task 2
For this task, we need to prepare a calculation table which is as follows:
AC (2.1)-Calculation of Mean, Median, & Mode of the given data:

Mean Calculation:

11750
The mean weekly expenditure spent by the customers in Wembley Central =
= =
175

67.14 million

Median Calculation:

Median in case of grouped data can be calculated by using the following formulae:

In this task, median class has been calculated by identifying the class which CF crosses the
half of the total frequency first.
AC (2.2)-Explanation of the significance of the calculated results in AC
(2.1):

Decision making process depends highly on information. The process becomes very easy, if
the information can be presented in a summarized way(Epstein, 2012). Through different
statistical tools, we can summarize information.

The mean value is one of the popular statistical tools to have a summarized view of the
information. Here, the mean value is 67.14 million. This means that the potential customers
in that area will on an average spend that amount.

Among various measures for central tendency in statistics, median is a prominent one. The
median can be used to determine the expenditure of the customers as well. Our median value
is 61.92 million. The median value is an estimation, since we have grouped data.

Mode is another measure of central tendency, it shows how frequently the customers will buy
from the company. Here, the modal class is 60 80 & the mode is 88.89 million.

Therefore, the management of DG Fashion should focus on using mean, median & mode to
have a summarized view of the information to make viable & meaningful decisions. Since
these measures help companies make decision properly, they are of great significance to the
decision-making process.

AC (2.3)-Calculation of Range & Standard Deviation & explanation of

significance:

When it comes to determining variations in the data sets, different statistical measures are
quite helpful such as the range & standard deviation.

Standard Deviation:
The standard deviation can be figured out in the following manner:

Significance to DG Fashions:

From the calculation done earlier, we can see that the range is 140. This shows the highest
amount the customers will be willing to spend. Range is also used for determining variation
in the data set. We can also see that the standard deviation from the calculation. The standard
deviation is 37.02 million meaning the customers at Wembley Central will make variations
in spending their money on DG fashions by that amount. These two values significant to DG
Fashions, since the knowledge regarding the variations in customers spending will help the
firm to take necessary decisions.

AC (2.4)-Explanation of how quartiles, percentiles, & correlation

coefficient can be used to draw useful conclusions in DG Fashions:
Quartiles is a measure of dispersion. It represents how the data variates will act in a quarter.
Quartiles divides the data in 4 parts. It is useful for DG Fashions, since the company will
have to emphasize on dealing dispersion of data(Ferrell, Fraedrich and Ferrell, n.d.).

Percentiles help to set out the decision for taking necessary business projects. Percentile
divides the data set into 100 parts. DG Fashions may use this to draw conclusions regarding
any the decisions necessary to take on a project.

Correlation coefficient is one of the most prominent measures of dispersion. It shows the
linear relationship between two variables(Freund, Wilson and Mohr, 2010). It is essential that
DG Fashion make relationship analysis before going for a project.
Task 3

AC (3.1)-Column/Bar graph showing Sales, Cost, & Profit:

Through the help of Microsoft Excel, we have produced the following graph:

Graph Showing Sales, Cost, & Profit

50
45
40
35
30
25
20
15
10
5
0
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Sales (m) Cost (m) Profit (m)

Comments:

Sales of DG Fashions have been in an incremental trend over the years;

The sales remained, to some extent, consistent from 2010 to 2013, & then it increased &
went on;
Along with the increase in the sales, the company also incurred increasing rate of cost
over the years;
Profits of the company kept on fluctuating over the years, DG Fashion enjoyed highest
profit in 2010 & in 2016.
AC (3.2)-Sales & Profit line graph trend lines:
The following line graph is prepared using Microsoft Excel:

y = 2.303x + 18.133
43
R = 0.9521 39
35
31 31 32
30

23 24 y = 0.5818x + 8.2
20 R = 0.4782
16
14 14
12 11
10 9 10 10
8

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Sales (m) Profit (m) Linear (Sales (m)) Linear (Profit (m))

AC (3.3)-PowerPoint Presentation:
The snapshots for the slides of PowerPoint presentation are given below:
D1
Time series is an analysis where the changes in one variable is measured with respect to time,
time is the independent variable(Gil Lafuente, 2013). Decision makers use this analysis very
often due to figure out the changes in any dependent variable based on time. For example, the
forecast of sales for the coming years. Time series analysis for the given data of in this task is
given below:

Sales (m)
50

45 y = 2.303x + 18.133

40

35

30

25

20

15

10

0
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Sales (m) 20 23 24 30 31 31 32 35 39 43

The above graph shows time series of sales of DG Fashions. We can see that the company
has upward trend in its sales. Here, years are the independent variable & sales are the
dependent variables. Time series analysis also results in forecast of future sales. In the graph,
we can see that the company will have 45 million sales volume by the year 2018.
Task 4

AC (4.1)-Gantt chart:
Through the use of a sophisticated software namely the Open Project, here we created a Gantt
chart as assigned by the line manager. The Gantt chart is shown in image form below:

Benefits of Gantt chart are as follows:

Project planning becomes easy, since Gantt chart shows all the activities in an organized
way;
Gantt chart provides information regarding various activities of a project through a
timeline along the chronology of the activities of any project (Harrin, Peplow and
Dalcher, 2012);
Through Gantt chart the overall duration can be figured out;
Gantt chart also shows the critical path of any project;
Gantt chart shows the predecessors & successors of each activity; etc.
AC (4.2)-Network Diagram:
Network diagram is one of the predominant project management tools that help decision
makers to decide which activities should completed, how to allocate resources, & how to
manage time etc. (Kratochwill and Levin, 2014). Following is a network diagram produced
through the use of Open Project:

From the above diagram we can that the critical path is shown through red lines. The critical
path here is:
A-F-G-K

The project duration is 255 days. The duration can be seen in the following diagram:
Task 4

AC (4.3)-Calculation of NPV, PBP, ARR to evaluate the proposed projects:

Payback Period:

Payback for Hammersmith project:

Year Cash flows (000) Cumulative Cash flows (000)

0 -500 -500
1 130 -370
2 120 -250
3 150 -100
4 160 60
5 150 210

Cumulative cashflow in Last year

Payback Period = [Years with Negative cash flows] + [ ]
Total cash flow in the next year

= 3.625 years or 4 years

Payback for Knightsbridge:

Year Cash flows (000) Cumulative Cash flows (000)

0 -500 -500
1 150 -350
2 130 -220
3 140 -80
4 100 20
5 140 160

Cumulative cashflow in Last year

Payback Period = [Years with Negative cash flows] + [ ]
Total cash flow in the next year

= 3.8 years or 4 years

ARR Calculation:

ARR for Hammersmith:

ARR = X 100

130+120+150+160+150
5
= 500+500 X 100
2

710
= 500 X 100

= 28.4%

ARR for Knightsbridge:

Average Net income

ARR = X 100
Average book value

150+130+140+100+140
5
= 500+500 100
2

= 26.4%

NPV Calculation:

The equation for NPV= (1+)

Discount Rate = 5%

Year Cash flows Discounted cash flows Cumulative cash flows

0 -500 -500 -500

1 130 123.81 -376.19

2 120 108.84 -267.35

3 150 129.57 -137.78

4 160 131.63 -6.15

5 150 117.53 111.38

NPV for Hammersmith:

NPV = (123.81+108.84+129.57+131.63+117.53) 500 = 611.38 500 = 111.38 million

NPV for Knightsbridge:

Year Cash flows Discounted cash flows Cumulative cash flows

0 -500 -500 -500
1 150 142.86 -357.14
2 130 117.91 -239.23
3 140 120.93 -118.30
4 100 82.27 -36.03
5 140 109.69 73.66

NPV = (142.86+117.91+120.93+82.27+109.69) 500 = 573.66 500 = 73.66 million

Comments & Recommendation:

From the calculation above, we can see that both of the project have the same payback period
which is 4 years. Payback period considers recovery period. It doesnt count wealth
maximization objective. In terms of accounting rate of return, Hammersmith is more efficient
& it has an ARR of 28.4%. The Knightsbridge project, on the other hand, has an ARR of
26.4% which is lower than that of Hammersmith. Accounting rate of return doesnt consider
economic values as well as time value of money. Both of the projects have positive NPV (net
present value). Hammersmith has bigger NPV than that of Knightsbridge. The NPV of
Hammersmith is 111.38 million & the NPV of Knightsbridge is 73.66 million. Since NPV
considers all the cash flows along with the time value money, it should be taken as the
yardstick for choosing any project. Moreover, NPV adds to net value of any firm. So, the
company is recommended to take the Hammersmith project, since it has a greater NPV over
the other one.

D3:

Internal Rate of Return:

For Hammersmith:

=0
(1+)
 130 120 150 160 150
= (-500) + (1+IRR)1 + (1+IRR)2 + (1+IRR)3 + (1+IRR)4 + (1+IRR)5 = 0

With the IRR function in Microsoft excel we have calculated the IRR and it is-

IRR = 12%

For Knightsbridge:

=0
(1+)

150 130 140 100 140

= (-500) + (1+IRR)1 + (1+IRR)2 + (1+IRR)3 + (1+IRR)4 + (1+IRR)5 = 0

With the IRR function in Microsoft excel we have calculated the IRR and it is-

IRR = 10%

From the calculation done above, it is clear that Hammersmith is in a better position than
Knightsbridge. Hammersmiths IRR is 12% & the IRR for Knightsbridge is 10%.

Critical evaluation of various capital budgeting techniques:

Payback period is the appraisal technique that focuses recovery of investment. It doesnt
count time value of money(MacLean and Ziemba, 2013). Moreover, PBP doesnt
consider all the cash flows & puts less focus on wealth maximization;
ARR is the investment appraisal that takes into account only the accounting values &
doesnt consider economic values. As a result, it can be misleading;
IRR is a sophisticated & popular method of appraising investment, but because of size,
type & timing cash flows, this technique may provide contradictory results;
NPV considers all the cash inflows & outflows. It also takes into account time value of
money. Moreover, it adds to the net value of the firm(Martin, 2012);

After the above comparative evaluation, we can say that NPV is the best investment
appraisal technique.
References
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Western/Cengage Learning.
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Epstein, L. (2012). The business owner's guide to reading and understanding financial
statements. Hoboken, NJ: Wiley.
Ferrell, O., Fraedrich, J. and Ferrell, L. (n.d.). Business ethics.
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