Advantages & Disadvantages

• Special Orders

  Advantages:

  • secure customer loyalty
  • spare capacity used

  Disadvantages:

  • profitability not guaranteed
  • near full capacity

  Evaluation:

  ~ no business can solely survive if costs are not covered

  ~ accept orders only that makes contribution
• ARR

  Advantages:

  • easy comparison
  • lifespan profit

  Disadvantages:

  • External factors - Depreciation
  • Timing of profit?

  Evaluation:

  ~ use more than one method

  ~ consider qualitative factors
• Payback

  Advantages:

  • Easy to calculate
  • Good for firms with cash flow problems

  Disadvantages:

  • External Factors
  • Estimates

  Evaluation:

  ~ use more than one method

  ~ consider qualitative factors
• NPV

  Advantages:

  • External factors
  • Opportunity cost

  Disadvantages:

  • Complex to calculate
  • Complex if initial is different

  Evaluation:

  ~ use more than one method

  ~ consider qualitative factors
• Technology

  Advantages:

  • quick decisions
  • better cater to customers

  Disadvantages:

  • high initial cost
  • lose creativity

  Evaluation:

  ~ continuously improving

  ~ short term high initial cost
• Cost Benefit Analysis

  Advantages:

  • External benefits that would have been ignored

  • Tax spending

  Disadvantages:

  • Hard to put monetary value

  • Considering all stakeholders

  Evaluation:

  ~ Time consuming

  ~ Experience
• CPA

  Advantages:

  • Targets set

  • JIT

  • Manage resources

  Disadvantages:

  • unrealistic

  • reliant on suppliers

  Evaluation:

  ~ Accuracy of data

  ~ not compromise quality

  ~ prepare to correct if now inaccurate
• Decisions Trees

  Advantages:

  • monetary value
  • planning - new

  Disadvantages:

  • Never achieved
  • Time consuming

  Evaluation:

  ~ qualitative factors

  ~ assumed firm will choose option with highest value
• Mission & Vision

  Advantages:

  • communicated purpose
  • Differentiated for customers

  Disadvantages:

  • not always supported by senior management
  • not achieved

  Evaluation:

  ~ supported and communicated to be efficient
• Corporate aims

  Advantages:

  • measure progress
  • ensures resources are available

  Disadvantages:

  • opportunity cost
  • external events

  Evaluation:

  • employees have to be aware
• Ansoffs Matrix

  Advantages:

  • level of risk indicated
  • possible outcomes of growth

  Disadvantages:

  • external events
  • doesnt take into account competition
• Inorganic Growth

  Advantages:

  • Access to new markets
  • Synergies
  • Economies of Scale

  Disadvantages:

  • high risk - cost
  • diseconomies of scale
  • customers dissatisfied

  Evaluation:

  ~ depends on the finance accessible

  ~ types of market conditions
• Organic Growth

  Advantages:

  • Financed internally
  • best use of resources

  Disadvantages:

  • Slow
  • Limited market

  Evaluation:

  ~ depends on finance accessible

  ~ types of market conditions
• Rationalisation

  Advantages:

  • capital utilisation
  • increased dividends
  • minimise unit costs

  Disadvantages:

  • Loss of employees
  • Damaged reputation
  • Demotivation

  Evaluation:

  ~ has to be well planned

  ~ clear objectives
• Horizontal Integration

  Advantages:

  • Reduced competition - EOS/ MS
  • Access to resources

  Disadvantages:

  • Diseconomies of Scale
  • Regulations - Monopoly
• Backward Integration

  Advantages:

  • Control over raw materials
  • removes profit margin

  Disadvantages:

  • Regulation
  • Lack of expertise
• Forward Integration

  Advantages:

  • Control over prices
  • Reduced profit margin

  Disadvantages:

  • Lack expertise
  • Regulation
• Franchising

  Advantages:

  • Fast growth
  • Motivated

  Disadvantages:

  • Cost of monitoring
  • Bad reputation
• Outsourcing

  Advantages:

  • Costs
  • meet demand
  • specialists

  Disadvantages:

  • Ethics
  • lead Times
• Budgets

  Advantages:

  • monitor performance
  • improved plans

  Disadvantages:

  • Motivation
  • Manipulation

  Evaluation:

  ~ Valueless is poorly constructed

  ~ can demotivate staff