Business decision making-6

1. An effective judgment has been made while preparing a project plan for an business problem of your selected organization(task 4.2 2. !esign of graphs using spreadsheet and trend lines in spreadsheet graphs to assist in forecasting the business information for the business problem of your selected organization (task ".1 # "." ". An appropriate finding has been drawn by using financial tools for decision making i.e !$% methods (task 4." 4. A good conclusion has been arrived while analyzing the results to the business problem for your selected organization by using specified business problem for your selected company.(task ".2 &. Autonomy and independence has been demonstrated while preparing a project plan for the business problem and determining its critical path.(task 4.2 '. A valid suggestion has been drawn while analyzing data by usingf financial tools for decision making for the business problem of your selected company ie dcf methods used (task 4."

An effective judgment has been made while preparing a project plan for an business problem of your selected organization(task 4.2)

(he essence of continual improvement is the ability to solve problems effectively. )hen an actual*or potential*problem crops up+ its root cause is first identified+ and action is taken to eliminate it. ,f an organization progressively seeks out and eliminates problems in this way+ continual improvement results. ,t-s that simple. (heorizing about problem solving as a cornerstone of continual improvement may be easy+ but making it happen in a systematic and effective manner is much more difficult. .roblem/solving skills rarely come naturally0 they must be refined and practiced daily. 1ut these skills can be developed by most organizations. After years of problem/solving e2perience in a variety of organizations+ ,-ve learned to recognize si2 consistent fundamentals that are almost always present when problems are solved in lasting and effective ways. ,f these si2 fundamentals are incorporated into your problem/solving strategy+ continual improvement will inevitably result. 3et-s look closer at each of them. se a structured problem!solving method Although most people consider problem/solving methods a given+ many organizations still use ad hoc methods for addressing problems. ,n other words+ they latch on to the most obvious e2planation for a problem and pray that they-ve addressed its root cause. An effective problem/solving method is simply a step/by/step road map for developing solutions. (he numerous reasons for using a formal method are very convincing. 4ere are just a few5 6 .revents problem solvers from jumping to conclusions. ,t-s always tempting to propose solutions before a problem is properly defined and its root cause identified. A structured problem/solving method prevents the process from short/circuiting and ensures the critical+ preliminary step of truly understanding the problem and its variables. 6 7nsures root cause analysis. An inability*or unwillingness*to identify the root cause is probably the single biggest obstacle to problem solving. 4owever+ when one of the e2plicit steps of a structured problem/solving method is identifying the root cause+ it-s much harder to ignore. 6 !emystifies the problem/solving process. )hen each step of the problem/solving method is understood and agreed upon by all participants+ the process gives everyone an opportunity to contribute and drives a team/oriented style of problem solving. 6 .rescribes which analytical tools to use and when. (he sheer number of analytical tools available to problem solvers is mind/boggling+ and it-s not always clear when the use of a certain one is appropriate. A structured problem/solving method offers guidance on when and how to use the proper tools.

2 ."esign of graphs using spreadsheet and trend lines in spreadsheet graphs to assist in forecasting the business information for the business problem of your selected organization (task #.$ % #.#)

(rendlines are used to graphically display trends in data and to help analyze problems of prediction. 8uch analysis is also named regression analysis. 1y using regression analysis+ you can e2tend a trendline in a chart beyond the actual data to predict future values. %or e2ample+ the following chart uses a simple linear trendline that is forecasting two 9uarters ahead to clearly show a trend toward increasing revenue.

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:ou can also create a moving average+ which smoothes out fluctuations in data and shows the pattern or trend more clearly. ,f you change a chart or data series so that it can no longer support the associated trendline * for e2ample+ by changing the chart type to a "/! chart or by changing the view of a .ivot$hart report or associated .ivot(able report * the trendline no longer appears on the chart. %or line data without a chart+ you can use Auto%ill or one of the statistical functions+ such as ;<=)(4( or (<7>!( + to create data for best/fit linear or e2ponential lines.

# ."cf methods !iscounted cash flow (!$% method is the most popular valuation method currently used for effective investment decision making. 1y calculating the present value of the e2pected future cash flows+ in discounted cash flow (!$% valuation method the value of an asset is the present value of the e2pected cash flows discounted by the cost of risk incurred by the cash flows and the life of the asset. !iscounted cash flow (!$% valuation is based on two fundamental principles5 1. 7very asset has an intrinsic value that can be projected if cash flows+ growth and risk are known. 2. ?arkets are inefficient and assets are not priced perfectly. (hese two key principles drive the !$% valuation method in terms of forecasting the e2pected cash flows+ the life of the asset and the discount rate that applies on these cash flows to calculate their present value. .ut simply+ when using !$% valuation method+ analysts aim at calculating the present value of the asset (e9uity or company based on projections of how much it will be worth after a certain period of time. (he logic behind the !$% valuation is based on the time value of money. A @1 today wonAt be worth the same after a year because of inflation+ ta2 pressures and so on. 8imilarly+ the value of e9uity or a company wonAt be the same as today. )ith !$% valuation analysts calculate the e2pected cash flows that the asset will generate based on its cash flows+ growth and risk. 1esides+ because stock markets can be highly volatile+ analysts typically make a reasonable prediction about the assetAs future earnings and discount them by calculating their present value. !$% valuation method uses e2pected free cash flows (%$% and discounts them with the risk free rate and risk premium to calculate the present value. ,n effect+ the value of the e9uity is calculated by discounting e2pected cash flows to e9uity after taking into consideration ta2 obligations and interest and principal payments at the cost of e9uity+ which all represent the rate of return re9uired by e9uity investors in the firm. (he principle of market inefficiency basically assumes that because markets are inefficient+ assets are not priced correctly. =n the other hand+ markets are able to correct themselves as soon as new information about the assets becomes available (market efficiency . (herefore+ the

forecast of the e2pected cash flows in terms of growth rate or profit margin becomes easier as soon as new information becomes available for this company. ,n general+ !$% valuation method is a good method for investors to know what assets they are actually buying. 1ecause it takes into consideration the intrinsic value of the asset+ which can only be estimated based on the uni9ue characteristics of the asset+ investors get to know the underlying characteristics of the company+ the company culture+ and how it does business. ,n doing so+ they are more conscious about their investment decision making and ready to anticipate their assumptions about the assetAs price. 1esides+ especially for ine2perienced investors+ !$% valuation is a great tool to check the fair value prices provided by analysts as well as the discount rate. ,f everything seems reasonable based on the companyAs fundamentals+ historical data+ and the industry it operates+ but also the broader economic environment including inflation and the risk/free interest rate+ then e9uity value is more likely to be reasonable thus making investment safer. Although+ !$% valuation method is not flawless and sometimes analysts may use it to manipulate asset values and make some investments look more attractive+ is one of the most effective valuation methods and definitely one of the most widely used. ;iven that any company on the globe aims at generating a return on investment and free cash flow after operating e2penses are deducted+ !$% valuation is the best method to use for evaluating if an asset is worth investing. ,f the value derived from !$% valuation is higher than the current market price+ the investment opportunity should be taken into consideration.
%,>A>$,A3 !7$,8,=> ?AB,>; (==38 .artial 1udgeting .artial budgeting is a financial tool used to assess the costs and benefits associated with a specific change in an individual enterprise within the business operation. (his tool specifically focuses on the implications of the intended change in a business operation by comparing the benefits and costs resulting from implementing the alternative with respect to the current practice.

,n case of drought management+ the partial budgeting techni9ue can be used to compare the costs and benefits of an alternative operation+ in this case a heifer replacement strategy+ assuming different chances of the occurrence of a drought. %or e2ample if there is an CDE chance of drought+ a rancher may consider the alternative of buying pregnant heifers verses raising them+ in this case buying them has a @1CFGhead advantage (see 72hibit2 . 4owever if the chance of drought is only 2DE+ raising heifers verses buying has an @C"Ghead advantage (8ee 72hibit 1 .

8teps ,nvolved in .artial 1udgeting 1. ,dentifying the proposed changeGs5

1efore starting partial budgeting+ farm managers need to be clear in their minds about why they are considering making a change and to recognize the possible alternatives to the current practice that might help them meet their desired outcome. 8ince partial budgeting re9uires some effort it is wise to choose among the best alternatives based on your initial assessment. 2. 3isting the key information necessary for analysis5

(his step is crucial and involves carefully gathering information pertinent to the costs and benefits associated with the proposed alternative(s . (his process includes listing information about anything that would be different among the choices+ things such as costs+ interest+ yields+ time+ revenue etc. ". ,dentifying the positive and negative effects5

(he proposed change will result in changes where some are hopefully positive effects while others will most likely be negative. (he main objective of partial budgeting is to weigh positive effects of the proposed change against the negative effects of the proposed change+ all relative to the current method of operation.

.ositive effects of the proposed change may result because of the elimination or reduction in cost of ceasing current activities andGor the generation of additional revenues by adoption of the new activities.

(he negative effects of such a change could be generated by an increase in the cost by implementing the new activity andGor a reduction in the revenue from ceasing the current activity.

%or e2ample+ in the case of a livestock enterprise+ where buying replacement heifers is compared to raising replacement heifers from the ranch+ the positive effect could be the reduction in the cost of feeding heifers limited range resources. =ther cost savings may include labor+ building+ e9uipment+ and management costs. (he negative effects of this proposed change could be the cost of buying cows+ the

inclusion of inferior genetics which results in reduced returns from the calves or anything other added cost or loss in revenue that can be attributed to buying verses raising cow replacements. 4. 7stimating the >et 7ffect

=nce the positive and negative effects are identified and 9uantified their difference will determine the outcome. ,f the proposed change has a positive net effect+ the change would be considered superior to the current method and would be considered for adoption. ,f the proposed change has a negative net effect+ the change would be considered inferior to the current method and would not be considered for adoption.

,n the final analysis it is the difference between the positive and negative effects that determine how the proposed alternative(s compares with the current method of production. ,t is important to note that a partial budget decision is no better than the information that goes into it. (he old adage garbage in garbage out is very relevant. (he table below presents a simple format of partial budgeting.
4 . A good conclusion has been arrived while analyzing the results to the business problem for your selected organization by using specified business problem for your selected company.(task #.2)

(he e2amples now becoming available offer wider lessons on ways that >;=s and e2tension services can work in a mutually reinforcing fashion. .redictably enough+ it is the group/organizing and human resource development skills of >;=s which have tended to complement the technical skills and facilities available to government. 3ess predictable are the types of interaction that might evolve in specific settings5 much appears likely to develop on an ad hoc basis in response to the individual characteristics of >;=s and the settings in which they work. 4owever+ it is becoming increasingly clear that a formal forum is re9uired for certain types of interaction+ including training+ the joint planning of research and e2tension agenda+ and the securing of joint management agreements for soil and water+ fodder+ and grazing resources. (he task for the coming decade will be to develop these in ways which are nonthreatening both to the organizations involved and to the informal interaction they already undertake and+ as a prior re9uirement+ to develop the mutual trust and awareness of each otherAs activities on which formal interaction depends.

' Autonomy and independence has been demonstrated while preparing a project plan for the business problem and determining its critical path.(task 4.2)

$ritical .ath )hen you e2amine the se9uences of activities of the project schedule that shows the individual tasks and their duration+ you can add the times on each se9uence and get a total duration for that se9uence. (he se9uence that takes the longest is the critical path. 1esides having the longest total duration+ the critical path activities follow each other immediately+ without gaps. ,f one of the critical path activities takes longer than anticipated+ the project is delayed as well.

$ompletion (ime )hen you have calculated the duration of the critical path+ you can determine the completion time of the project. Adding the time it takes to complete the tasks on the critical path to the starting date gives you the

completion date. :ou can maintain this date as long as you complete every critical activity within its projected duration. At the same time+ you have to monitor the other activities of the project for delays. ,f there is a substantial problem in one particular area+ the task se9uences affected may take longer. ,n some cases+ one of these delayed se9uences may become the one with the highest total duration and replace the original critical path. (he project may suffer delays unless you can reschedule tasks and reassign resources to reduce the duration of some of the critical activities. ( .A valid suggestion has been drawn while analyzing data by usingf financial tools for decision making for the business problem of your selected company ie dcf methods used (task 4.#) .roblem solving is about going from where you are to where you want to be. !ecision making is about choosing how you want to do it+ so it is an integral part of the problem/ solving process. ,n that sense+ we all are daily problem solvers G decision makers+ so any improvement in our skills may result in major advancements in our professional and personal lives. )e-ll talk about comple2+ ill/defined and non/immediate ($,!>, problems. $omple2 problems have components that are opa9ue andGor interdependent. ,ll/defined problems are those where the information to solve them+ the solution state and+ for that matter+ the problem itself might not be clear. H>on/immediate- just means that you have at least a few days to solve your problem. 8o $,!>, problems are large+ challenging ones. 21st $entury ;rand $hallenges are $,!>, problems. .opular e2amples also include curbing global warming+ countering the diabetes epidemic+ or providing clean drinking water. 1ut $,!>, problems don-t have to be global. (hey can also be personal ones5 a graduate student choosing her dissertation topic+ a professional wondering whether to change careers+ a young family deciding whether to buy a house all are e2amples of $,!>, problems. Iust like becoming a good tennis player+ becoming an effective problem solver re9uires skills that you develop through forming habits. (his site gives ideas on how to ac9uire these habits.