Analysis Of Cash Flows And Investment Plan Selection

Key Metrics for Investment Plan Selection

As per the operating cash flow which is generated by both the projects the project 1 shows that the cash generated from such is more which is shown to be £ 1,30,000 and the cash which is generated from Project 2 is £ 80,000. The above calculations make it clear that the cash generated from project 1 is more than project 2. The payback period which is calculated for the projects shows that project 2 has a better payback period as compared to Project 1 which means that the business will be able to recover the initial investment more quickly in case of project 2. The net present value which is computed for project 1 and project 2 shows that the cash generation which is expected from project 1 is much more and is shown as £ 15,200. The NPV of Project 2 as calculated shows that it is lesser than project 1’s NPV and it is shown as £ 12,000. Thus from the above analysis, it can be recommended that the management of CyberScore Plc should select Project 1 investment plan as the cash generated and NPV of the project is much better than project 1’s results.

The term corporate Governance and Corporate Social Responsibility is used simultaneously by many organization but there exists a major difference between the two concepts. There exists a relationship between the two concepts but the same can be established if the two concepts are understood in its full meaning. Corporate Governance may be defined as the balance which the business needs to have between the economic goals and social goals and between communal goals and individual goals (Tricker and Tricker 2015). The framework establishes set of rules which facilitates efficient use of resources for the activities of the business and the business accept full accountability for such activities. The aim of the corporate governance framework is to promote ethical norms and align the interest of individuals

On the other hand, Corporate Social Responsibility states that the business should carry our its operations in such a manner that is ethical and the activities of the business should affect the ability of the future generation to produce similar profits. The concept is concerned with the business acting in the best interest of the society and also maintain the ethical standards of the business (Schwartz 2017). The concepts states that the business is responsible to the stakeholders which includes creditors, investors, money lenders, suppliers and the society at large and always act in the best interest of the society (Servaes and Tamayo 2013). The relationship which can be established between Corporate Governance and Corporate Social Responsibility are discussed below:

• The CSR policies of the business are gradually be included in the Corporate Governance Framework of the business.
• Both Corporate Governance and CSR policies of the business focuses on ethical standards of the business and the responsiveness which the business has towards its stakeholders and related to the environment where the business carries out its operations (Cheng, Ioannou and Serafeim 2014).
• Another similarity between the two concepts is that both Corporate Governance and CSR policies of the business if effectively followed by the business results in building a better reputation of the company in the market and is also directly related with the level of performance which the business can achieve (Bhattacharya et al.2015).
• The policies which are associated with CSR is related with legal and regulatory mechanisms whereas Corporate Governance is an effective control mechanism which the company can develop within the scopa of which the company takes important decisions of the business.

The non-executive managers of the business are responsible for the overall management of the business and are also members of the board of directors of the business. The performance criteria of the non-executive director of the business are discussed below:

• The non-executive directors of the business are responsible to make the executive directors and the management responsible to the stakeholders of the business. The non-executive directors of the business can supervise such accountability by taking part in the meeting of the board of directors and formulation of company’s strategies.
• The performance of the non-executive director can be judged by the level of independence which he has in the management of the company. The non-executive directors of the business are responsible for overall management of the company and also involved in the decision-making process of the company (Bach 2013). The non-executive directors of the business also need to ensure that the independence principle is not affected in any way.
• The performance of the non-executive directors of the business also depends on the time which is spent by the directors in the overall and day to day management of the business. The non-executive directors are expected to commit a significant amount of time in the oversight of the business (Ntim et al.2015). The non-executive directors of the business are also expected to disclose any time commitments which the directors have during any period.
• The performance of the non-executive directors is also measured in terms of the valuable inputs which they provide in the decision-making process of the business and their active involvement in day to day management of the business.
• In addition to this, the performance of the non-executive directors of the business is anticipated to be resourceful and have external contacts which can be valuable for the management of the business. The non-executive directors of the business are to suggest all the business strategies which can be beneficial for the business.

Traditional Budgeting may be defined as the process wherein the last year’s budget is taken as a base in order to prepare the current year’s budget. The management only makes necessary changes in the previous budgets and this prepares the current year’s budget of the business. For the preparation of such a budget the management considers factors such as inflation rate, consumer demand and the present market situation (Réka, ?tefan and Daniel 2014).

The advantages which can be effectively pointed out for traditional budgets are explained below in details:

• Framework of Control: The most common advantage of any budgets is that it can be used as a tool for exercising control over the business and also be used form measuring the performance of the business. In other words traditional budgeting forms a framework of control which can be help the management to promote effectiveness of the management process and also manage the activities of the business much easier and also promote stability.
• Forms a part of the organizational Culture: The budgets which are prepared by the management forms a part of the organizational culture of the business. Budgeting practices are widely used in the business and also universally applicable to every department of the company. Traditional Budgeting is still widely used in finance, cost and operations department and forms a part of the regular activity of the business (Sandalgaard and Nikolaj Bukh 2014).
• Planning and Forecasting: Traditional Budgeting enables the business to forecast the expenses and revenues which the business expects to generate during the year and also facilitates comparison between the actuals results of the previous year (Dudinet al. 2015). The budgets are considered to be important tools with the help of which the management can exercise control and also measure the performance of the business.
• Facilitates Decentralization: Some of the industries which are operating such as banking sector and other financial organization recognizes that the business will greatly benefit if the business is allowed to be decentralize (Wildavsky 2017). Therefore, the method of budgeting and budget cost centers give the managers the freedom to run their business as per the planned process and also ensure that the management is pursuing the goals which are established by the business.
• Other advantages: In addition to the above mention advantages, there are also certain mixed advantages which traditional budgeting system provides in a business. The system of budgeting provides the business an opportunity to plan for all contingencies or losses which the business faces effectively (Lorain, García Domonte and Sastre Peláez 2015). The budgets which are prepared by the management provides a general guideline on the basis of which various departments in the business can stick the plan of the management while conducting day to day operations of the business.

The traditional budgeting system also faces certain limitations which are discussed below in details:

• Inefficiency: The formulation of a traditional budgets takes too much time of the management and also the resources available to the company is also utilized in excess. The time which is spent in the preparation of the budget is not considered to be productive time used by the management by a majority member of the business (Zeller and Metzger 2013). The main reasons for the excess time which is taken for the preparation of the budget can be due to the use of spreadsheets or complex computer-based software which involves manual entry of data.
• Low Change Responsiveness: Any changes which occurs in the market or business position or budgeting cycle of the business than such changes makes the budget obsolete in nature. This is due to the fact that the management is unable to incorporate changes in the budgets which are already prepared by the business. The management is unable to make regular reviews as the process is very much time consuming in nature. Thus, the management of the company cannot spend time in resources in updating a budget which has been affected by changes.
• Failure to Motivate Desired Behavior: The traditional budgeting system is not much of a help when it comes to motivate the employees of the business. The budgets which are prepared by the business is fixed or flexible but the standard sets are high and from the view point of the employees are not achievable. This leads to demotivation on the part of the employees of the business.
• Disconnection with Strategic Plan: In many cases the management is so much concerned with the numbers which are set form the various departments to achieve that the management of the company misses out the basic purpose which is there for preparation of the budgets in the first place (Pietrzak 2013). Budgets are generally prepared in order to ensure that the strategic plans and goals of the business are followed and ultimately achieved keeping the budgets as the base or guideline. Traditional budgets focus more on costs reductions for the business rather than value creation for the business which suggests that the business does not focuses on the strategic plans of the business and such plans are not given priority.
• Errors: The budgets which are prepared by the management are often subjected to errors which might be there for numerical mismatch or due to forecasting errors. In case of budget preparation, the forecasting ability of the management is the key for a budget to be successful. If the management is unable to forecast effectively than this will result in misrepresentation in the budgets of the business which will in turn lead to miscommunication of the plan of the management to various department which will ultimately affect the performance of the business.

Reference

Bach, S., 2013. Performance management. Managing human resources: Human resource management in transition, pp.221-342.

Bhattacharya, C.B., Korschun, D., Sen, S. and Routledge, H., 2017. Corporate social responsibility. Journal of International Law, 26(2).

Cheng, B., Ioannou, I. and Serafeim, G., 2014. Corporate social responsibility and access to finance. Strategic Management Journal, 35(1), pp.1-23.

Dudin, M., Kucuri, G., Fedorova, I., Dzusova, S. and Namitulina, A., 2015. The innovative business model canvas in the system of effective budgeting.

Lorain, M.A., García Domonte, A. and Sastre Peláez, F., 2015. Traditional budgeting during financial crisis. Cuadernos de Gestión, 15(2).

Ntim, C.G., Lindop, S., Osei, K.A. and Thomas, D.A., 2015. Executive compensation, corporate governance and corporate performance: a simultaneous equation approach. Managerial and Decision Economics, 36(2), pp.67-96.

Pietrzak, ?., 2013. Traditional versus activity-based budgeting in non-manufacturing companies. Social Sciences, 82(4), pp.26-37.

Réka, C.I., ?tefan, P. and Daniel, C.V., 2014. TRADITIONAL BUDGETING VERSUS BEYOND BUDGETING: A LITERATURE REVIEW. Annals of the University of Oradea, Economic Science Series, 23(1).

Sandalgaard, N. and Nikolaj Bukh, P., 2014. Beyond Budgeting and change: a case study. Journal of Accounting & Organizational Change, 10(3), pp.409-423.

Schwartz, M.S., 2017. Corporate social responsibility. Routledge.

Servaes, H. and Tamayo, A., 2013. The impact of corporate social responsibility on firm value: The role of customer awareness. Management science, 59(5), pp.1045-1061.

Tricker, R.B. and Tricker, R.I., 2015. Corporate governance: Principles, policies, and practices. Oxford University Press, USA.

Wildavsky, A., 2017. Budgeting and governing. Routledge.

Zeller, T.L. and Metzger, L.M., 2013. Good Bye Traditional Budgeting, Hello Rolling Forecast: Has The Time Come?. American Journal of Business Education (Online), 6(3), p.299.