Models

by Emmanuel
(Nigeria)

Explain the relevance of models of decision making in business operations.

Comments for Models

Apr 28, 2011

Results
by:

If an organization decides on a model they think is the best available and all managers follow that model exactly then the results will more likely be uniform. They think the results will be good.

Mar 24, 2010

Models of Decision Making
by: Dee Reavis

Models of decision making provide a formal method for coming to decisions. Any organization would like to make the best decisions possible. For a business for profit, maximization of profits is the goal.

If every manager in the the organization is making decisions based on his or her perception of how to make a decision, then the results can be very uneven.

The organization can decide on a model for decision making that they think is the best available. If each manager is required to follow that model, then the results will more likely be uniformly good.

Theoretically profit will be maximized.

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Life Cycle Cost(LCC)

by Dave Ryan
(Melbourne)

If minimization of LCC is the criteria, which truck should be recommended?




                       Truck X       Truck Y

Procurement Cost       $130000       $158000
Annual Operating Cost  $25000        $21000 
Annual Failure Rate     0.05           0.06
Disposal Cost          $2000         $2000
Useful Life (expected)10 years       10 years
Annual Interest Rate     6%             6%
Expected Failure Cost  $2000/yr      $1500 /yr

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Nov 24, 2009

NPV Analysis Of Life Cycle Costs
by: Dee Reavis

The numbers work out to be:



First Cost    $130,000    $158,000

Annual Cost    
  Operating     25,000      21,000
  Failure          100          90

Disposal Cost    2,000       2,000

NPV at 6%      297,976     296,548

NPV at 10%     259,091     262,145

The NPV at 6% shows that the 2nd option has a lower cost, so it should be chosen.

It is interesting to note that when a discount rate of 10% is used, then the first option has a lower cost.

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How To Develop ROI Of Business

by Sachin
(Pune)

Please give information on how to increase ROI in a business.

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Dec 20, 2009

Increasing ROI or Project Profit
by: Dee Reavis

There are only 3 ways to improve the ROI or profit of a project.
Return On Investment(ROI)

1. Reduce the investment. If you lower the amount of money required up front without reducing the cash flow, then you will make a higher ROI.

2. Reduce the expenses. High expenses are a negative for any project. You need to spend time trying to reduce the project expenses to the minimum. The lower you go the higher the ROI.

3. Increase the revenue. Revenue is the opposite of expenses. When you increase the revenue, you will also increase the profit.

ROI improvement must come from one of these 3 sources.

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Financial Analysis

by Nadeem
(niftikhxr@savola.com)

What are the financial analysis skills required for business analysis?

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Dec 20, 2009

Important Financial Analysis Skills
by: Dee Reavis

It is very important to be able to determine if a project is economically feasible or not. It is also important to understand whether a given part of an organization is economically viable.

Some of the analysis methods are:

NPV
IRR
ROI
Payback

If you understand how to calculate some or all of these analysis methods, you will have some of the most important skills for financial analysis.

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