Sample Essay on Business Decision Making

Business decision making

Introduction

Restaurant ABC has a successful restaurant in London. Following this success, the restaurant’s board of directors now plans to open a second restaurant in Carnaby Street, London. The said board of directors has appointed me to conduct a market research on its behalf and make recommendations regarding this move. My main task in this research will be to determine the customers’ pricing preferences in relation to their income (Zikmund and Barry 66). This report entails what I have done regarding this issue. The first part of the report entails the method I have used in collecting the data and analyzing it. The second part entails what I have found out while the third part entails the financial viability of the project together with what the board of directors should do in executing the project.

Task one

Methodology used in Data Collection (LO1.1)

Theoretically, primary data comes directly from the field while secondary comes from other sources other than directly from the field. Some sources of secondary data include government sources and sales reports. Secondary data is easier to collect than primary data, but it has some limitations that primary data does not have (Boone and Kurtz 319). In the process of collecting data, researchers may use questionnaires, surveys, interviews or direct observation.

In this study, I collected primary data using questionnaire. On the other hand, I collected secondary data by evaluating the sales records of the already running restaurant. My research participants came from the region the board of director plans to open the second restaurant. From this region, I sampled and interviewed fifty people from different age groups. Finally, I analyzed the data I collected using Excel program. This program is efficient in analyzing data (Black 49). It is also efficient in organizing, evaluating and reaching conclusions once data collection process has been conducted (McFedries 2).

(LO1.2)

With regard to collecting data, researchers should have clear methodologies. These methodologies should help researchers to plan their studies and execute them effectively.

For my case, I used a descriptive research design. This research design involved collecting data and then describing the issue as it was in the region in question (Berk and Carey 129). Alongside with descriptive research design, I used simple random sampling method in selecting my sample population. This sampling method was appropriate for my study because it allowed me to pick research participants randomly without discriminating against some of them. By so doing, I was able to collect the data easily and appropriately (Gratton and Jones 128).

Questionnaire (LO1.3)

A good questionnaire should be specific and clear. It should also start from general questions to specific questions (Conway 3). This questionnaire has been designed in such a way that it will help the researcher establish the relationship between income and pricing strategy that the board of directors might utilize in the second restaurant. Accordingly, the focus of the questionnaire is on income and the amount of money the respondents utilize on food and beverages once in restaurants (Conway 4).

  1. What is your name? _________________
  2. What is your gender?
  3. Male
  4. Female
  5. How old are you?
  6. 21 – 25
  7. 26 – 30
  8. 31 – 35
  9. 36 – 40
  10. 41 – 45
  11. 46 – 50
  12. Over 50 years
  13. What is your level of income?
  14. Below £ 200
  15. £ 201 – 400
  16. £ 401 – 600
  17. £ 601 – 800
  18. £ 801 – 1,000
  19. Over £ 1,000
  20. Do you go to restaurants for lunch or dinner?
  21. Yes
  22. No
  23. If yes, how often do you go to restaurants for lunch or dinner?
  24. Daily
  25. Between 3 – 5 times a week
  26. Less than 2 times a week
  27. Once a month
  28. Twice a month
  29. Less than five times a year
  30. Why don’t you go to restaurant often? (For respondents that do not go to restaurant more than 3 time a week).
  31. There are no restaurants in this area.
  32. Restaurants in this area are of poor quality.
  33. I cook at home
  34. Restaurants offer their food and beverages at high prices
  35. Not applicable
  36. On average, how much money do you spend on food when you go to restaurant?
  37. Below £ 10
  38. £ 10 – 14
  39. £ 15 – 19
  40. £ 20 – 24
  41. £ 25 – 29
  42. Over £ 30
  43. How much do you spend on beverages when you go to restaurant?
  44. Below £ 10
  45. £ 10 – 14
  46. £ 15 – 19
  47. £ 20 – 24
  48. £ 25 – 29
  49. Over £ 30
  50. When do you go to restaurants?
  51. On weekdays for either lunch or supper
  52. On weekdays for supper and dinner
  53. On Friday for either lunch or supper
  54. On Friday for lunch and supper
  55. On Saturday for either lunch or supper
  56. On Saturday for both lunch and supper
  57. On Sunday for either lunch or supper
  58. On Sunday for both lunch and supper
  59. Would you try another restaurant if you found one in this area?
  60. Yes
  61. No
  62. Of the following three items, what would attract you to the new restaurant?
  63. Affordable food and beverages
  64. Quality services
  65. Variety of dishes

Task two (LO2 and LO3)

Findings

The study interviewed fifty respondents from the region the restaurant plans to open its second restaurant. Of these respondents, 48 percent were females while 52 percent were males.

 

In terms of age, 12 percent of these respondents were aged between 21 and 25 years, 20 percent of them were aged between 26 and 30 years while 16 percent of them were aged between 31 and 35 years. Those aged between 36 and 40 years were 20 percent, those aged between 41 and 45 years were 14 percent and those aged between 46 and 50 years were 8 percent. The respondents aged over fifty years were 10 percent (Lewis 65). The bar chart below depicts the age groups of the respondents.

 

(Macfie and Philip 58)

 

With regard to the levels of income, 6 percent of the respondents had their income levels below £ 200, 8 percent had their incomes between £ 201 and £400 while 18 percent of them had their incomes between £ 401 and £ 600. The respondents with their income levels between £ 601 and £ 800 were 26 percent, those with their income levels between £ 801 and £ 1000 were 22 percent while those with their income levels over £ 1,000 were 20 percent. This demonstrates that the income level of majority of the respondents is over £ 400 (Davis and Branko 22).

With regard to going to restaurant for either meal or beverage, all the respondents claimed that they go to restaurant. When asked how often, 60 percent of the respondents claimed that they go to restaurant on daily basis, 18 percent claimed that they go to restaurant between three and five times a week while only 8 percent of the respondents claimed they go to restaurant for less than two times a week. The rest of the respondents claimed that they either go to restaurants once or twice a month or even less than five times a year (Lawrence, Ronald and Sheila 19). When asked why they don’t go to restaurants frequently, majority of the respondents claimed that they don’t do it because restaurants charge high prices while some of them claimed that they cook at home.

In terms of spending once they go to restaurants, 26 percent of the respondents claimed that they spend less than £10 on food, 28 percent claimed that they spend between £10 and £14 on food while 30 percent of the respondents claimed that they spend between £15 and £19 on food. Only 12 percent of the respondents claimed that they spend between £20 and £24 on food. The rest of the respondents that were about 4 percent of the respondents claimed that they spend over £25 on food when they go to restaurant (MacDonald 488).

With regard to beverages, 50 percent of the respondents claimed that they spend below £10 on beverages, 36 percent claimed that they spend between £10 and £14 on beverages while 8 percent claimed they spend between £15 and £19 on beverages. The rest of the respondents which was 6 percent of the respondents claimed that they spend more than £20 on beverages (Walkenbach 42).

When asked their appropriate time of going to restaurants, 6 percents of the respondents claimed that they do it on weekdays for either lunch or supper. Those that claimed they go to restaurants on weekdays for both lunch and suppers were 10 percent while those that claimed they do it on Friday for either lunch or suppers were 14 percent. Majority of the respondents claimed that they go to restaurants on Fridays for lunches and suppers as well as on Saturdays for either lunches or suppers. Only 16 percent of the respondents claimed that they go to restaurants on Saturdays for both lunches and suppers (Reding and Lynn 20). Six percent of the respondents claimed that they go to restaurants on Sundays for either lunch or supper while 4 percent of the respondents claimed that they go to restaurants on Sundays for both lunches and suppers.

 

When asked whether they would try another restaurant, all the respondents claimed that they would do it. With regard to expectations in the new restaurant, 72 percent of the respondents claimed that they would expect food and beverages in the new restaurant to be affordable. Only 18 percent of the respondents claimed that they would expect to find quality services in the new restaurant while only 10 percent of the respondents claimed that they would expect a variety of dishes in the new restaurants (Alexander 241).

Analyzing secondary data

Apart from analyzing the primary data that I collected, I also analyzed the secondary data that I collected from the sales report. With the help of this data, I was able to project the possible sales for the second restaurant. I did this by first determining the mean, mode, median, standard deviation and finally introducing the trend line.

Generally, the fiormular for calculating the mean is expessed as it follows.

Mean = ∑ xi/n where xi is the observed value and n is the number of samples in the distribution. The formlar for calculating meadian is as it follows.

Median = [(n/2)th term + (n+1)/2th term]/2. The mode is the most frequent number. Finally, the formula for calculating standard deviation is as it follows.

α = sqrt[1/N∑( xi – µ)2)] where sqrt is the squae root, xi are the individual score and µ the mean of the sample.

Column1
 
Mean profit 3470.833
Standard Error 70.83333
Median 3450
Mode 3500
Standard Deviation 245.3739
Sample Variance 60208.33
Kurtosis 1.753352
Skewness 0.373812
Range 1000
Minimum 3000
Maximum 4000
Sum 41650
Count 12

 

Discussion 

Based on the above findings, it can be seen that majority of the people in London particularly in the region the board intends to open a second restaurant are potential customers. This is in relation to the fact that all of the respondents in this study go to restaurants even if not regularly for some of them. This notwithstanding, it would be a good idea to open a second restaurant in the region in question because all the respondents claimed that they would try another restaurant. At the same time, the findings indicate that the respondents spend some considerable amount of money whenever they go to restaurants. Nevertheless, when setting the price for its products, the board of directors needs to understand the pricing preference in the region (Abdel-Kader 320). With regard to this issue, the researcher established that the income levels for majority of the respondents are above £400. This finding is based on the fact that only 14 percent of the respondents have their income levels below £400. However, even though this is the case, majority of the respondents seem concerned about the prices that restaurants charge for their foods and beverages (Albright, Wayne and Christopher 31). In fact, when asked what they would expect to find in the new restaurant, 72 percent of the respondents claimed that they would expect to find affordable foods and beverages. Although the research did not delve into establishing what affordability means to the research participants, the board of directors needs to be concerned about this issue.

In determining how the board of director should address the pricing issue, the researcher has evaluated the amount of money the respondents spend on food and beverage whenever they go to restaurants. The researcher has established that 26 percent of the respondents spend below £10 on food whenever they go to restaurants. The researcher has also established that 28 percent of the respondents spend between £10 and £14 on food while 30 percent of the respondents spend between £15 and £19 on food whenever they go to restaurants (Guerrero 45). With regard to beverages, the researcher has established that 50 percent of the respondents spend below £10 on beverages while 36 percent of the respondents spend between £10 and £14 on beverages. This suggests that the board of directors should not set the prices of its products to high. If anything, the board of directors should set the prices of its products based on the amount of money the respondents spend on food and beverages whenever they go to restaurants. Suffice to say that there seems to be a correlation between the income levels of the respondents with the amount of money they spend on food and beverages (Covington 272).

Recommendations

Based on the above findings, the researcher recommends the board of directors to do the following.

  1. To invest £5,000 in the project
  2. To set food and beverage prices in line with the amount of money the respondents spend any time they go to restaurants. That is, to limit the food prices within £10 and £15 as well as limit beverage prices within £10.

 

 

Critical path to follow in implementing the project (LO4.2)

Jan-15  Feb-5 Mar-15 Apr-15 May-15 Jun-15 Jul-15
Planning
Acquiring funds
Renovating the building
Hiring employees
Launching the project
Following up the project

 

Financial Viability of the Proposed Recommendations (LO4.1 and LO4.3)

It has been recommended that the board of directors should invest £5,000 in this project. By recommending this, the researcher anticipates that the restaurant will make money from this venture. Accordingly, it will be profitable to invest in this project and evaluate its profitability after five years (Shapiro and Sarin 411). The researcher anticipates that the restaurant will make £1,000 in the first year, £1,100 in the second year, £1,200 in the third year, £1,300 in the fourth year and £1,400 in the fifth year. The proposed discount rate for this business is 4%. Discounting the cash flow using the following formula

P = p/ (1 + i)t

Where p is the amount of cash flow

t is the time (in years)

i is the discount rate,

The researcher obtains the following figures

For the first year: p = 1,000/ (1 + 0.04)1 = 961.54

For the second year: p = 1,100/ (1 + 0.04)2 = 1017.01

For the third year: p = 1,200/ (1 + 0.04)3 = 1066.80

For the fourth year: p = 1,300/ (1 + 0.04)4 = 1111.25

For the fifth year: p = 1,400/ (1 + 0.04)5 = 1150.70

Adding up the discounted cash flows and subtracting the initial investment of £5,000, the researcher obtains the following NPV.

i.e. £ (961.54 + 1017.01 + 1066.80 + 1111.25 + 1150.70) – £5,000 = £307.30

This means that it will be viable to invest £5,000 in this project at 4% discount rate for five years.

Conclusion

This report recommends that the board of directors should open a second restaurant in the region in question because of the following reasons. First, the researcher has established that the region has potential customers. Second, the researcher has established that the potential customers in the region are eager to try a new restaurant. For these two reasons among other reasons, the board of directors should invest £5,000 in the project because it would be viable to do so in five years at 4% discount rate. Based on these findings, the restaurant’s board of directors should go ahead and open its second restaurant in the proposed region. However, the board of directors should set food and beverage prices at reasonable prices because customers in this region are sensitive to high pric

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