Question

Let us examine the financial implications of decision making. What we also learn from the reading materials is that financial outcome of decision could have far reaching implications. Are there situations in which outcomes of decision making are not financial? Please discuss your answers.

Answer 1

Solution:-

In the world of business, most of the decisions that management take have far reaching implicatons. While most of the implications directlyt or indirectly have financial impacts on the business, it still happens that few decisions may impact businesses non-financially.

Decision making and financial implications:

There are wide spectrum of decisions that business managers taken at all levels on any given day. Every decision is taken keeping in mind the objective of growth, profitability and sustainability of business. Every decision, even so much as CSR decisions like charities do indirectly have financial impacts on businesses. The strategic decision making, innovation, entering new markets, exiting a business, firing employees, increasing workforce, building a new factory, offering discounts, new products, changing the brand logo, dividend, share buybacks are just few of innumerable decisions that managers take and all of them have financial implications. Some of decisions have direct financial implications and some other may have indirect implications, such as charities as part of CSR initiatives strengthen the long-term brands of the companies, change of CEO would indirectly impact profitability and long term business performance, etc.

The various financial implications of decisions include the following:

• Increase in profitability and long-term competitiveness of the business
• Investments in patents, trademarks and other intangibles building durable coimpetitive advantages and giving companies higher profitability
• Increase in revenue but decrease in profitability
• Large cash outflows through investments in fixed assets, mergers and acquisitions, etc
• Divident payouts resulting in cash outflow for company and inflows for shareholders
• Capital inflows through sale of assets, discontinuing of certain division, etc

Non-financial implications of decision making:

Every decision taken by a business does directly or indirectly impact its immediate or long-term profitability but having said that, the implications of the decisions are not just financial but reach far neyond that in terms of their impacts on societies, local cummunities, nation building, human growth, health, education and learning and simply overall world progress.

All decisions that are taken for the well being of business have not only financial outcomes but do have other implications which go far beyond numbers such as follows:

• Job creation in local cummunities through hiring by companies
• Investment in technology and innovation has made our lives so convenient and overall good for society
• Workplace environment policies directly impact employee health and worklife balance
• The products that companies sell have various non-financial implications in the lives of consumers
• Profitable businesses result in a prosperous society overall
• Growth in businesses such as pharma healthcare has improved the durability of life and increased the life expectancy