Question

If a company is considering expansion, what variables would it consider in making a decision? What might be useful sources of information to use in computing the net value of an expansion?

Answer 1

The company could perform PESTLE Analysis which will help it understand its market and business position better and help them develop strategic plan to take the decision.

• Political: discussing about the political factors that could affect the expansion such as goverment policies, political stability, tax policies, trade policies, restrictions, labor laws, regulations and others.
• Economic: discuss about the economic forces that may impact the decisions such as current economic trends, industry trends, growth rates, inflation, exchange rates, seasonal factors, unemployment rates, credit availability, raw material costs, labor costs and others
• Social: discuss about the social aspects, trends and attitude that might affect the target makets such as demographics, population, lifestyle trends, family structures, and beliefs about money, work, leisure, health customer service and others
• Technological: discuss about the ways to implement and use technologies such as tech infrastructure, access to tech, automation, innovation, tech research regulations and others
• Legal: discuss the impact of legal and regulatory requirements that might affect the business such as consumer protection laws, company laws, health laws, data protection law, safety standards, and other laws and standards
• Environmental: discuss about the impact of environmental forces on the business and also natural resources that can be used by the business. some of things that fall under this are climate change, carbon footprint, recycling policies, waste management policies, environmental regulations, pollution targets and others

The net value of the expansion can be determined using the various methods such as

• Determining Incremental Relevant Cost: comparing the costs that will be incurred or saved as the result of the decision
• Determining Opportunity Cost: opportunity cost is the benefit that is foregone when one opportunity is chosen instead of the other
• Cost Volume Profit Analysis: Analyzing how the costs, revenues and profits are related to sales volume and then predicting how these variables will affect each other if decision is taken
• Forecasting: determining incremental cost and benefits of the decision