Response to Students’ Posts

please respond the the two peers to the following:

Cost Benefit Analyisis

Option 1

As we discovered this week from our readings and video’s, not all cost-benefit decisions can be made from strictly financial data. Thinking about a project you have worked on or proposed, or a project which you feel is critical in your company or community, give an example of a non-financial metric which should be considered and why you think that non-financial metric should result in the approval of the project.

– OR –

Option 2

Your New Product Development initiative is at the stage where a Cost-Benefit Analysis is needed to prepare for the final presentation to management. There are multiples metrics you could use to quantify the benefit of your proposal (incremental sales, nominal payback, discounted payback, NPV and IRR). Choose the one that you feel is most crucial and would best help Management see the value in your proposal. Explain what the metric shows and then discuss how you would go about gathering the data and calculating this for your new initiative (and, if you have already done this in real life, share what you did and what response you got from Management).

peer #1

Josue Mourino

RE: Week 8 Discussion

COLLAPSE

Cost Benefit Analysis

Option 1

It is important to understand what non-financial metrics are, they are quantitative measures that are not express in monetary units. Measures such as customer satisfaction and employee satisfaction fall into non-financial metrics (Visionedgemarketing.com, 1).

In a simple decision of changing work hours, we can see a change in productivity and turn around time that will make a customer happy. My project is called time change. Although it is an unorthodox project none the less, I consider it my project. Our Fleet manager resigned, and I was put as interim Fleet Manager. The first thing I decided to tackle was to change the hours of operation from 4/10’s to 5 days 8 hours.

This has boosted our productivity, employees are happy working this schedule, morale is up, and our customers are happy that the turn around time is less. Checking labor hours for 6 months versus labor hours for the time when we were 4/10’s shows a complete boost in labor hours. The same is true for turnaround time. The longer the vehicle or equipment is down for repairs and Maintence the less money they are making, and the drivers and operators are not happy since they may have to be using a pool vehicle.

References

. Visionedgemarketing.com. No Date. Six Non-Financial Metrics Every Marketer Should Measure. https://visionedgemarketing.com/non-financial-metrics/#:~:text=Non%2Dfinancial%20metrics%20are%20quantitative,value%2C%20and%20return%20on%20assets.&text=Because%20financial%20performance%20measures%20such,considered%20trailing%20measures%20of%20performance.
Ittelson, T. (2020). Financial Statements, Third Edition. Career Press, ISBN: 978-1-63265-175-4.
Siciliano G. (2014). Finance for Nonfinancial Managers, 2nd edition. McGraw Hill Education, ISBN:978-0-07-182436-1.
Welch, J. & Welch, S. (2015). The Real-Life MBA. HarperCollins, ISBN: 978-0-06-236280-3.
Christopher D. Ittner and David F. Larcker. 2003. Coming Up Short on Nonfinancial Performance Measurement. https://hbr.org/2003/11/coming-up-short-on-nonfinancial-performance-measurement.

peer #2

Maha Al-Shetihy

RE: Week 8 Discussion

COLLAPSE

Hello All,

For this week’s post, I select Option 2. I have not been engaged in new product development initiatives before. However, I believe that for a new product proposal, it would be best to describe the benefits of using NPV and IRR.

A dollar in our hand today is worth more than the dollar we expect to collect tomorrow. To figure if this new product is worth it, we need to calculate the time value of money. The proposed investment has to add enough value to the company that debt can be repaid, and owners are happy. An investment that returns less than the company’s cost of capital will not be worth the investment. The investment should generate a return at least comparable to what we can get from another opportunity at a similar level of risk (Berman, 2008).

To prepare for the proposal:

We need to show management that the investment will generate enough cash.
We need to collect all the data we can about the cost of the investment.
We need to determine the benefits of the new investment, in terms of what it will save the company or what it will help the company earn, and translate those into an estimate of cash flow.
We need to calculate the net present value of the project (NPV).
We should also calculate the internal rate of return (IRR).
We will then outline the costs and benefits and describe the risks.

The Net Present Value (NPV) is the present value of one or more future cash flows less the initial investment costs. The Present Value (PV) is the monetary value today of a future payment discounted at the annual compound interest rate. Its value represents the profit that covers the cost and extra more. So, If the resulting NPV is a positive number, and no other investments are under consideration, then the investment should be pursued. This can be improved if the NPV is presented in worst-case, most-likely-case, and best-case scenarios.
As for the Internal Rate of Return (IRR), it is defined as the discount rate at which the NPV of an investment equals zero. To calculate it, we need to determine the discount rate that would reduce NPV to zero, and IRR will be that discount rate. When the IRR is greater than the opportunity cost for a comparable investment, the investment should be undertaken (Leucke, 2006).

These two metrics are essential and will help us calculate the benefits of the proposed investment.

Thank you,

Maha

Subject: Masters Management

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Response to Students’ Posts

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