Business Decision Making- Unit 06

Batch 04

Acknowledgement
I would like to thank my Business Decision Making lecturer Ms. Nilushi Gunarathne for the guidance and assistance provided. Without her guidance, all my efforts could have been useless. I would like to thank the academic staff of ICBT for helping me with various issues during the project. I like to thank my

dear family for their valuable advice and as help given to me at all times. Last but not least I thank our friends at ICBT for always giving me a helping hand.

Bhakthi Jagodaarachchi

Business Decision Making- Unit 06 Task 01: 1.1 1.2 Task 02: 2.1 2.2 2.3 Task 03: 3.1 3.2 Task 04: 4.1 4.2 Task 05: 5.1 5.2 5.3 Task 06: 6.1 6.2 6.3 6.4

Batch 04

Sampling .................................................................................................................................... 3 Random and Non- Random Sampling ........................................................................................... 3 Social Issue .................................................................................................................................... 7 Data Presentation ................................................................................................................... 11 Sector contribution to the GDP during year 1989 2009 .......................................................... 11 Imports & Exports of Sri Lanka.................................................................................................... 13 Labor Force in Sri Lanka 1998 - 2007 .......................................................................................... 16 Forecasting .............................................................................................................................. 17 Trend Line ................................................................................................................................... 17 Revenue Forecasting ................................................................................................................... 19 Information System & Inventory Control ............................................................................... 20 Information System..................................................................................................................... 20 Economic Order Quantity (EOQ) ................................................................................................. 20 Project Management .............................................................................................................. 22 Gantt Chart.................................................................................................................................. 22 Network Diagram ........................................................................................................................ 23 Critical Path ................................................................................................................................. 24 Management Accounting ........................................................................................................ 25 Importance of Net Present Value (NPV) ..................................................................................... 25 Importance of Internal Rate of Return (IRR) ............................................................................... 25 Net Present Value (NPV) ............................................................................................................. 25 Internal Rate of Return ............................................................................................................... 26

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Task 01: Sampling

1.1 Random and Non- Random Sampling
Random sampling is a sampling technique that is chosen by a method connecting an unpredictable component. This sampling technique (Random Sampling) is also can refer to taking number of independent observations from the same probability, without relating any real population. The sample is not a representative of the population which was drawn. These random differences in the results are known as sampling errors. There is a mathematical theory available in order to mitigate the sampling errors in the random sampling technique.

1.1.1 Simple Random Sampling A sample Random Sampling is a sub technique of sampling chosen from a large population. The individuals are chosen randomly and each of the individuals has the same chance of being chosen for the sampling process. This sampling technique is the simplest of the types of sampling techniques. This process is called Sample Random Sampling not Random Sampling.

Advantages: Taking advantages in to consideration, this sampling technique has free of classification error. Sampling Random Sampling also requires minimum knowledge of the population other than the frame. It is simple and easy to understand the data gathering with the use of SRS. Disadvantages: Not possible without complete list of population members; potentially uneconomical to achieve; can be disruptive to isolate members from a group; time-scale may be too long, data/sample could change. (5)

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Example Suppose that there is a need of carrying out a quality guarantee survey for a schools (where 500 students study) cafeteria service. The surveyors need to select 10 children out of the 500 to carry out this survey. In order to select the sample, the surveyors may distribute 500 tokens within the value range of 001 500. In order to select a 10 out of the 500, the surveyors may create a table with randomly generated figures ranging from 001 500 where a random starting point will be chosen and 10 figures on a raw from that starting point will be selected. Whoever the student who holds a token of the chosen 10 figures will be counted in to the survey sample.

1.1.2 Stratified Sampling Stratified Sampling is a process of dividing elements of the total population into homogeneous subgroups before sampling. The layers of the elements should be equally selected, elements in the population should be allocated to only one layer. every

Advantages: It is confirmed that every group is represented on the survey due to the usage of stratas. Disadvantages: Stratified Sampling technique is not helpful when the population cannot be

comprehensively separated into disjoined subgroups.

Example A school which had an idea of dropping grade 13 from the secondary school needed to carry out a survey analyzing the opinion of its students from grade 9 13. In order to ensure that the sample number of students will be evenly selected from all grades, the school board may use Stratified Sampling Method. In this scenario, five grades (grade 9-13) can be divided in to stratas where the school board may choose a sample from every stratum. With a use of simple random sampling, the board may extract students from these stratums.
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1.1.3 Cluster Sampling Cluster sampling is another technique of sampling that is being used for Natural grouping in a statistical population. It is frequently used in Marketing Research. In this technique of sampling the total number of populations is divided in to clusters (groups) and out of the groups one or more groups are being selected. After the selection of groups, then necessary information is gathered from the selected groups. This mechanism will be done for all the elements in groups or subsamples elements will be selected out of these groups.

Advantages: This sampling technique is cost effective and quick in action. Randomly selecting from clustered samples is much more easy and effective rather than sampling the entire country population. Disadvantages: Not ideal for any sampling which require equal or fair sampling. With

cluster sampling, the researcher has a chance of having a cluster over presented or under presented

Example Suppose the sports ministry of Sri Lanka needs to carry out a survey on the sports which are performed by the grade 13 students of Sri Lanka, it would be costly and complex to look in to every Sri Lankan grade 11 students. Instead, the ministry could select 100 schools from all island considering those 100 schools to be different clusters and then carry out the survey.

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1.1.4 Multi Stage Sampling This method is mainly used to trim the number of researchers and research cost of sampling. With the use of this technique, the general population to be evaluated will be divided in to groups (clusters). Information to be selected from each group is then collected. This information collection will be performed on each element included in those selected groups.

Advantages: Can make up probability sample by random at stages and within groups; possible to select random sample when population lists are very localized (5) Disadvantages: sampling (5) Complex, combines limitations of cluster and stratified random

Example For an example, in a country which needs to collect crop- cutting information, as the first- stage, the country will be divided in to a number of districts. In the Second- Stage, all those districts will be divided in to towns where in the Third- Stage, those towns will be divided in to number of farms. Extracting sub sets out of the first stage, the crop- cutting investigations can be carried out at the stage three. Work may be further carried out on fields selected from farms.

1.1.5 Quota Sampling In quota sampling technique, the randomness in selecting samples is strengthened in favor of cost effectiveness and simplicity. Researchers are to interview every entity found in these chosen quotas. Advantages: Ensures selection of adequate numbers of subjects with appropriate characteristics

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Disadvantages: population

Not possible to prove that the sample is representative of designated

Example A researcher who is in a shopping complex might need to sample their quota by interviewing people who are interested in shopping during the week. Practically, this could be done by dividing the quota in to subdivisions according to the types of people. For example on the basis of age, sex and income, to ensure that the sample mirrors the structure or stratification of the population. The interviewer is then told to interview, for example 30 males between the ages of 30 and 40 from social class C1. The actual choice of the individuals to be interviewed within the limits of the quota controls is left to the field worker.(4)

1.2

Social Issue

In Sri Lanka, drug addiction and excessive consumption of alcohol has become a common encounter and a serious health issue. It has caused for a annihilation in the human values in the society. The number of prisoners who are charged for breaching the law due to drug offences has created an alarming circumstance in the existing society of Sri Lanka. 1.2.1 Questionnaire Take a moment to answer the following questions in this Drug Addiction Questionnaire. Be sure to read through them all and be honest about your answers. And the true answers will be appreciated 1. Gender Male Female

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2. Age Below 15 21 25 31 40 Above 50 15 20 26 30 41 50

3. Marital status Single Married Separated Widow

4. Monthly income Rs. 5000 Rs. 10,000 Rs. 25,000 Rs.50,000 Above Rs. 100,000 Rs.10,000 Rs.25,000 Rs. 50,000 Rs.100,000

5. Over the last 12 months have you had any trouble with legal matters at work or at school as a result of drinking or drug use? Yes No

6. Has drinking or drug use made you careless of your familys welfare? Yes No

7. Do social situations make you uncomfortable unless you drink or use drugs? Yes No

8. Have you had negative consequences from drinking or drug use but you continued to drink or use drugs anyway? Yes No

9. Do you think a lot about or are preoccupied with thinking about using drugs or drinking as far as when you will next use? How much you use? How much you dont use or whether you should use or not? Yes
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10. Have you had financial problems because of drinking or drug use? Yes No

11. Do you drink or use drugs alone? Yes No

12. Have you ever used cocaine, crack, heroin, pot, Ecstasy, blue ice, pcp, acid or any other designer drugs? Yes No

13. Do you think it is necessary for you to use drugs to maintain your current lifestyle? Yes Thank you for the corporation! No

1.2.2 Survey Distribution This is a mass study about drug addiction in Sri Lanka which has to be studied in Island Wide basis. The study has no other option other than executing the survey island wide due to drug addictions and alcohol consumptions critical spread over the entire country and its severe effects on the entire society in general. Making the fact clear, the researcher has to carry out its survey covering the entire nation. 1.2.3 Sampling Technique Application In executing this survey, the researcher as to divide the country in to its 9 main provinces and select 7 out of the nine to assist an accurate and reliable data gathering covering a considerable proportion of the population. The most ideal way of selecting 7 provinces out if the 9 is the Chit Pooling method where all 9 province names will be written in 9 different chits where 7 of them
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can be chosen randomly with no pre- identification. This sampling takes the form of Simple Sampling. Once 7 provinces are confirmed, stratified sampling can be used to do data gathering in small towns of those 7 provinces where each and every population sector will be divided in to stratas and observed.

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Task 02: Data Presentation

2.1
Year 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Sector contribution to the GDP during year 1989 2009

Agriculture 25.6 26 26.8 25.9 24.6 23.8 23 22.4 21.9 21.1 20.7 19.9 20.1 20.5 13.2 12.5 11.8 11.3 11.7 13.4 12.6 Industrial Service 26.8 47.7 25.6 25.6 25.6 26.2 26.5 26.4 26.9 27.5 27.3 27.3 26.8 26.3 28.4 28.6 30.2 30.6 29.9 29.4 29.7 47.6 85.7 47.7 48.5 49.8 50.1 50.5 51.1 51.2 51.4 52 52.8 53.1 53.2 58.3 58.8 58 58 58.4 57.2 57.7

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Contribution to the GDP (1989 - 2009)

90 P e r c e n t a g e s 80 70 60 50 40 30 20 10 0

1990

1999

1989

1991

1992

1993

1994

1995

1996

1997

1998

2000

2001

2002

2003

2004

2005

2006

2007

2008

Years Agriculture Indistrial Service

The graph illustrated above evidently shows the contribution of Sri Lankas main three sectors, Agriculture, Industry & Service to the Gross Domestic Product (GDP) of the country for the duration of year 1989 2009. According to the graphical illustration for 20 years above, we can clearly see that the service sector of the country has been reaching and maintaining its greater heights during its action compared to the other two sectors. This indicates that the service sector of Sri Lanka has played a major role in improving the fabric of GDP in Sri Lanka and contributed to the countrys development. In justifying the consideration further,

2.1.1 Agriculture Considering the agriculture contribution illustration on the above graph, we can see that the agriculture industry has been increasing and maintaining its contribution to the GDP at an approximate level of 25% during the time period of 1989 1996. From year 1997 2002, agriculture industry starts facing a recession where it again experience a tragic fall in its
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contribution to the GDP during the time period of 2002 2006. Finally, it is clearly seen that a change in the recession pattern has taken a turn to a positive face from the year 2006 probably due to the government change and new rules and regulations imposed on the system.

2.1.2 Industrial In the industrial sector of Sri Lank over the 20 years of time, it seems to be well maintained where it holds a contribution to the GDP of an approximate level of 27%. But in year 1990, there has been a drastic change in the chain of contribution to the GDP rating a 47.7%

2.1.3 Service Service sector contribution has shown a clear impressive contribution (85.7) to the GDP of Sri Lanka over the 20 years of time with a minimum of 47.6% in the year of 1989 where as a contribution of such percentage was recorded as the highest contribution in both industrial and agriculture sectors over the 20 years time. This outstanding contribution can evidently called as strengthening the GDP of Sri Lanka.

2.2 Imports & Exports of Sri Lanka

Year Imports (Billion) 1999 2000 2001 2002 2003 2004 5,979.30 7,319.80 5,974.40 6,105.60 6,671.90 7,999.80 Exports (Billion) 4,610.30 5,522.30 4,816.90 4,699.00 5,133.30 5,757.20

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2005 2006 2007 2008 2009

8,863.20 10,253.00 11,296.50 14,091.20 10,206.60

6,346.70 6,882.70 7,640.00 8,110.60 7,084.50

Imports & Exports 1999 - 2009

25,000.00 20,000.00 15,000.00 Value in Bln 10,000.00 5,000.00 0.00 1999 2000 2001 2002 2003 2004 Years Imports (Billion) Exports (Billion) 2005 2006 2007 2008 2009

2.2.1 Imports Looking at the above illustration we can witness that the imports of Sri Lanka during year 1999 2009 has maintained an average of Rs. 8676.15 bln except during year 2004 where a drastic fall in the imports of Sri Lanka is noticeable. Experiencing strong imports is unhealthy to a nation. Because increasing imports mean an increase in leakages from the system to other countries where monetary funds for nations development will be adversely affected. 2.2.2 Exports

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As you can see in the above illustration, exports of Sri Lanka during 1999-2009 have been maintaining a lower status compare to imports. Exports over this period of time hold an average value of Rs. 6178.66 bln where the average of imports is recorded as Rs. 8676.15 bln. Due to the unhealthy exports circumstances of Sri Lanka, it has been experiencing a deficit in its balance of payment (BOP).

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2.3

Labor Force in Sri Lanka 1998 - 2007

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Task 03: Forecasting

3.1
Year

Trend Line
Sales (Y) (X) XY X2

1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

43.83 49.42 28.02 40.06 58.99 19.25 36.05 41.37 48.25 51.25 102.1 27.16 55.27 64.59 95.66 70.39 23.53 75.78 31.81 101.2

-10 -9 -8 -7 -6 -5 -4 -3 -2 -1 1 2 3 4 5 6 7 8 9 10

-438.3 -444.78 -224.16 -280.42 -353.94 -96.25 -144.2 -124.11 -96.5 -51.25 102.1 54.32 165.81 258.36 478.3 422.34 164.71 606.24 286.29 1012

100 81 64 49 36 25 16 9 4 1 1 4 9 16 25 36 49 64 81 100 y xy x2 = 1063.98 = 1296.56 = 770 = 53.199

[ y = a + bx ] Where, a =
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And a) b b

= xy / x2

=1296.56 / 1063.98 = 1.68

b) a c) y

= 53.20 = 53.20 + 1.68x

x = (-10) & (5) for year 1995 and 2005 where x = (-10), y y = 53.20 + 1.68 (-10) = 36.36

where x = 5, y y = 53.20 + 1.68 (5) = 61.62

year 1995 = 36.36 year 2005 = 61.62

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UNIX Sales Forecast 1991-2010

120 100 80 Sales 60 40 20 0

Year Sales Trend Line

3.2

Revenue Forecasting

Year 2012 X value is 12 & Year 2013 X value is 13

2012 :

= 53.20 + 1.68 (12) = 73.36 million Rupees.

2013 :

= 53.20 + 1.68 (13) = 75.04 million Rupees.

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Task 04: Information System & Inventory Control

4.1 4.2 Information System Economic Order Quantity (EOQ)

4.2.1 Formula Method Cost of placing an order Annual Demand Cost of holding one unit of stock for one year Economic Quantity Order = = 10 = 500 = 10000

= Economic Quantity Order = 1000

4.2.2 Tabulation Method

Annual Demand 10000 10000 10000 10000 10000 10000 # of Order Qty Avg. Stock Holding Cost Ordering Total Cost Cost 10000.000 5000.000 3333.333 2500.000 2000.000 1666.667 5000.000 2500.000 1666.667 1250.000 1000.000 833.333 50000.000 25000.000 16666.667 12500.000 10000.000 8333.333 500 1000 1500 2000 2500 3000 50500.000 26000.000 18166.667 14500.000 12500.000 11333.333 20

Orders 1 2 3 4 5 6

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Business Decision Making- Unit 06 10000 10000 10000 10000 10000 7 8 9 10 11 1428.571 1250.000 1111.111 1000.000 909.091 714.286 625.000 555.556 500.000 454.545 7142.857 6250.000 5555.556 5000.000 4545.455 3500 4000 4500 5000 5500

Batch 04 10642.857 10250.000 10055.556 10000.000 10045.455

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Task 05: Project Management

5.1 Gantt Chart

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5.2

Network Diagram

0 0

A 7

7 7

B 7

14 42 14 C

14

21 21

F 14

35 49

H 7

42 56

14

35 35

L 7

42 56 7

G 9

21 K 56 7 56 7 I

7 M

J Critical Path

10 63 63

7 N

11 70 70

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5.3
CP

Critical Path
= = = = A D E G I N

A+D+E+G+I+N 7 + 14 + 14 + 21 + 7 + 7 70 Days

Critical Path duration of Floric Manufacturing Ltd for its BPR program is 10 Weeks.

5.3.1 Total float for all Non- Critical activities TF = Latest Finishing Time (LFT) Earliest Finishing Time (EFT)- Duration (AD) B C F H J K L M 42 - 7 - 7 28

56 - 14 - 14 28 49 - 21 - 14 14 56 - 35 - 7 63 - 42 - 7 63 - 35 - 7 56 - 35 - 7 63 - 42 - 7 14 14 21 14 14

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Task 06: Management Accounting

6.1 6.2 6.3 Importance of Net Present Value (NPV) Importance of Internal Rate of Return (IRR) Net Present Value (NPV)
Project (A) Year Initial Cash Discount Present Value Factor 15% 0 1 2 3 4 Present Value = NPV Value = 120000 0 38000 38000 35000 30000 0 0.8696 0.7561 0.6575 0.5718 0 33044.8 28731.8 23012.5 17154 101943 -18057

Investment Flow

Project (B) Year Initial Cash Discount Present Value Factor 15% 0 1 2 3 4
Bhakthi Jagodaarachchi

Investment Flow

96000

0 35000 35000 35000 35000

0 0.8696 0.7561 0.6575 0.5718

0 30436 26463.5 23012.5 20013

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Present Value = NPV Value =

99925 3925

*Net Present Value

Present Value Initial Investment

6.4
Year

Internal Rate of Return

Project (A) Initial Cash Discount Present Discount Factor 15% Value Factor 5% 0 0 0 36191.2 34466 30233 24681 125571.2 5571.2 Present Value

Investment Flow

0 1 2 3 4

120000

0 38000 38000 35000 30000

0 0.8696 0.7561 0.6575 0.5718

33044.8 0.9524 28731.8 0.9070 23012.5 0.8638 17154 101943 -18057 0.8227

Present Value = NPV Value =

Project (B) Year Initial Cash Discount Present Discount Factor 15% 0 1 2 3 4
Bhakthi Jagodaarachchi

Present Value

Investment Flow

Value

Factor 18%

96000

0 35000 35000 35000 35000

0 0.8696 0.7561 0.6575 0.5718

0 30436

0 0.8475

0 29662.5 25137 21301 18053

26

26463.5 0.7182 23012.5 0.6086 20013 0.5158

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Present Value = NPV Value =

99925 3925

94153.5 -1846.5

6.4.1 IIR Calculations

IIR

IIR for Project A

: : :

0.05 + (0.2357 x 0.1) 0.07357 Where as, IIR for project A is 7.35%
( )

IIR for Project B

: : :

0.15 + (0.6800 x 0.05) 0.184 Where as, IIR for project B is 18.4%

Considering all above calculation, we can come to a conclusion that project B is a more profitable when compared to project A where it would be a wise idea for John Company Ltd to invest on project B for more effective return on investment (ROI). In further justifying the consideration, NPV values of project A and B are -18057 & 3925 respectively where project B hold a favorable and profitable position in its NPV value when compared to the NPV value of project A. As well as the NPV value, project B has reflected a higher IIR (18.4%) compared to project As IIR value (7.35%). With the positive consideration of both project A & project B values, we can estimate that project B is more idealistic for a potentially profitable project to invest on.

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