Business Intelligence and Knowledge Management - Assignment Example

BUSINESS INTELLIGENCE AND KNOWLEDGE MANAGEMENT PART A Executive Summary This report evaluates the feasibility of leasing property business investments by considering the Net Present Value through calculations. In this context, the analysis will reveal the advantages and disadvantages which may arise due to involvement in such projects. To achieve this, it will review the amount of money likely to be spent and received at the end of the project’s useful life by 2016. The final findings show that the NPV does not meet the decision criteria set by the top management. This value of NPV is calculated using the visual DSS believed to the most reliable decision making software tool. However since the risk analysis and Net Present Values at various stages presents a unfavorable values to the organization, it is wise enough to drop the project. In this report readers will see how the various modules of the visual DSS are used to get the values of NPV and Risk analysis upon which managers peg their decisions. In this context, various DSS windows, which help the student, get the NPV and analysis results as shown in the reports. Preface In the old business environments, managers used to undergo the tasking procedure of making decisions on whether to implement a proposed project or not. This had been a tedious exercise following that it involves much complex arithmetic and option weighing. However, with the advent of Decision Support Systems, managers have been greatly relieved from making erroneous decisions on projects. The DSS thus enable managers to automatically evaluate the benefit level of business opportunity. This system would show the profits or losses which may be incurred as a result of undertaking the project. Therefore this report is going to evaluate the economic benefits of proposed investment with useful life of six years. It will do this by calculating the NPV in the first year of its useful life. In this context, income, expenses and processes would be examined to finally give the best indicator for involvement. Question 1 Fig.1 Visual DSS model-A1 Fig. 2 Sample of DSS Model Report A1 DSS Report Description (Question 1) In this model, there are four main sections all under consideration in the throughout the useful life from the year 2011. The first section has variables such as Net Present value, Overhead cost, rate, Initial investment, Outflow, Profit, Number of units sold, Cost, Income and Netflow. NPV considers variables such as cash flow, profit and discount rate. NPV can also be expressed in million by dividing NPV by 1000000. Incorrect NPV is also obtained by considering the Netflow and the discount rate. Cash outflow used in obtaining the NPV value is obtained by adding the initial investment and overhead cost which stands at $5000000 and $1000000 respectively. To get the profit value, the difference between the cash inflow and outflow will be computed by the system. Consequently this income value is obtained by multiplying the units sold by the price per unit product. In this respect, to get the units sold, the system will multiply the market value at the time of introduction by the market share which is 900000 and 36% respectively. On the other hand, the cost required in profit computation is obtained by multiplying the number of units sold by unit cost where unit cost stands at $7.25.Finally, this section present Netflow value as the profit obtained minus the initial investment which is $5000000. Initial investment here is the amount paid by the company when the business idea was bought. The second section is the Market. In this section, variables such as market share, total market, market growth and selling price are presented with values as 36%, 900000, 9.5% and $13.75 respectively. The third section of this model is Production. In this section, variables such as unit cost, overhead cost and initial investment are considered with values as $7.25, $1000000 and $5000000 respectively. Finally, there is Economic section which has discount rate of 12% as the only variable used. Types of variables in the model The following are the types of variables considered in coming up with the model: Result Variables, Decision variables, Uncontrollable variables and Intermediate Results Variables. A result variable in this case is the Net Present Value. Decision variables are market at the time of introduction, selling price, production cost, and market share and market growth. Uncontrollable Variable is annual overhead cost and initial investment. Finally the intermediate result variable is Discount rate. In this DSS report, the annual Outflow, market share, Unit cost, overhead cost, selling price and discount rate stand at constant values of $1000000, 36%, $7.25, $1000000, $13.75 and 12% respectively. However the outflow, profit, income, number of units sold, cost, netfow, total market shows annual increase in every year. On the other hand, initial investment is shown once signifying that it is a one time investment cost which would be incurred at the start of this investment at a value of $5000000.Similarly NPv is also shown once to signify that it is used only for prediction purposes over a period of useful business life.The DSS report reveals the NPV as $1066209.51 which translates to NPV_millions of 1.066.Therefore it means that the claim made by the product development team that the NPV being above 1000000 is CORRECT Environment Customers Government Stockholders Banks Competitors System Boundary Fig.3 The DSS model Sructure A1 The model structure above has three main parts with a boundary all round. The boundary to the internal part has five components as customers, government, competitors, banks and stake holders. These are the common external forces dictating what the internal parts should do. The three main internal parts are Inputs, Processes and the Output. Input section is dominated by data such as income, market variables, cost variables and discount and rate. These inputs are then processed by the system to generate associated values of Outflow, Inflow and Netflow. The system then produces the calculated Net Present Value based on the decision value or concept. Similarly the decision to be considered by the process part depends on the NPV value and the input values. This means that the produced NPV value must be looped back to managers to act further on the project. Question 2 Fig.4 Risk Analysis Report A2 Fig.5 DSS Risk Analysis A2 Fig. 6 Risk Analysis Cumulative Distribution Chart A2 Description Once the report was viewed by the senior staffs, some changes were to be considered as follows. Initial investment uniformly distributed between $4,500,000 and $5,500,000.Annual overhead could be as low as $750,000 or as high as $1,250,000 but most likely to be $1,000,000 per annum thus in triangular presentation, Annual overhead=1000000 *tri (0.75, 1, 1.25) ‘$.Netflow =Inflow – Outflow. The executive officers are considering not proceeding with this investment if there is 20% or greater chance that the Net Present Value will be less than $ 1 million ($1000 000).According to the risk analysis conducted by the visual DSS, the project did not meet the condition with cumulative probabilities of new calculations indicating that at . [5 December, 2010] Leet et al.(‘n. d.’) Personal Decision Making [online] ‘available from’ .[5 December, 2010] Personal Decision making [online] ‘available from’ http://www.decision-making-tools.com/Personal_Decision_Making_Articles.html>. [5 December, 2010] Simon et al. (2008) Economics Bounded Rationality and the cognitive Revolution [online] ‘available from’ http://books.google.com/books?hl=en&lr=&id=CdI9VRcn1SEC&oi=fnd&pg=PR6&dq=Simon%27s+decision+making+figures&ots=B9mIrvPHxU&sig=l5ou00wu1AJRCztp2sTws_AE23A#v=onepage&q&f=false>. [5 December, 2010] Turban et al. (2007) Decision Support and business Intelligence Systems. Pearson education: Saddle River Read More