Financial and non-financial implications of Winston Barkwith’s proposal Essay
Financial and non-financial implications of Winston Barkwith’s proposal
For my analysis I simplified ‘normative investment process’ model (original source: Pike and Dobbins, 1986), which I would like to use to determine the future viability of the project plan put forward by Winston. The basic idea which underlies the model is that the process of capital investment can be considered to flow from strategic planning through to search for investment opportunities to meet that plan. The opportunities are screened and defined for the subsequent analysis by management. If the project is sanctioned then the investment is made, making sure that there are no cost overruns. Once a project has been commissioned and running for a time it is useful to assess whether it is meeting the expectation promised at the evaluation stage. Audit technique can be used at latter stages to ensure appropriate control.
In order to evaluate Winston’s proposal I used in depth qualitative cost-benefit analysis and also numerical techniques, such as cash flow forecast and payback (see Appendix 1).
Main body of the report:
1) Strategic plan.
Strategic plan of the North West Trust for the Protection of Wildlife is very well reflected in the aims of that organisation, which state the following:
“h to encourage farming practices in the region which will not endanger local animal life;
“h to enable the region’s residents to enjoy the local countryside;
“h to educate the region’s young people on how to look after and enjoy the local countryside and wildlife.
2) Search, Screen and definition of investment opportunities.
There are two projects put forward before the committee. One of which is the proposal made by the newly elected chairman of the committee, which involves reorganising Moult Hall property into quad biking course.
On the other hand, there is a proposal made by Jonathan and Ingrid, who are senior members of the committee. Their idea is to restructure Moult Hall. This would allow young and disadvantaged members of society access to the property.
3) Evaluation of investment opportunities.
In this section of my work I would like to concentrate on the cost-benefit analysis of Winston Barkwith project, because it is one which is most contradictory to organizational aims and raises most concern among the members of the Trust’s committee. I mentioned the word contradictory because according to the opinion of many leading financists capital investment decisions should allocate resources within the organisation to offer the best potential for meeting its objectives.
As understood by me, the idea of financing profit oriented recreational facility is a relatively new one for the organisation. Therefore, the estimates of future profits and cash flows can’t be made using the past experience as a guide. Consequently, form financial point of view they are going to be subjects to greater risk by being the product of forecasts and estimates. The riskier the project the more return the company is likely to require. In the case of Winston’s proposal we can consider the venture as a diversification, which is usually associated with required return of at least 30%.
Although no discount factors are given, the nominal figures predicting amazing cash inflow, which can be used to finance other projects. Use of money from the venture could give the organisation opportunity to help more people than they currently do. Dramatic increase in the capital inflow may give the Trust prospect to achieve much wider objectives than its original ones, e.g. go nation-wide, create or support government lobby, international ventures, etc.
There are other, mainly non-financial, advantages of the proposal as well, such as possible boost to the local economy. Organising of quad biking courses will create money inflow into the local economy, which will be magnified by the positive multiplier effect with the end result being increase in wealth for the local community. Let me demonstrate, employees and sub-contractors paid by the owners of Moult Hall are likely to be spending significant proportion of their incomes in the nearby area, which in turn means increases in revenue for the local businesses. Increase in revenue for businesses is likely to result in greater variety, create jobs and allow for more taxes to be collected by the local council, which than can be spend on such public programmes as support of elderly and disadvantaged members of the local community.
Another benefit to the local economy which is likely to occur is an improvement in infrastructure. Improved infrastructure should breathe life into the local community; make Moult Hall’s and the Trust’s facilities more accessible.
By accepting Winston’s project the Trust could gain invaluable City contacts. If the situation arises the Trust is likely to be in a better position to raise additional funds. Also, the customer segment the proposal is aiming for are extremely wealthy individuals, they are CEO’s (Chief Executive Officer) of large corporations. By cleverly promoting itself the Trust can attract some very influential beneficiaries or even become sponsored by one of the companies. It is not an unrealistic thought, since in the UK many companies which finance charitable organisations often get tax breaks from the government.
To add more weight to my arguments in favour of Winston Barkwith proposal I would like to bring forward idea which belongs to one of the leading economic thinkers of the modern era. Milton Friedman of University of Chicago holds the view that all businesses should use the resources available to them as efficiently as possible. Friedman argues that making the highest possible profit creates maximum possible wealth to the benefit of the whole society.
A good starting point would be the issue of finance. It may be difficult to find finance capital for such a risky venture. It is unlikely that the Trust will have extra four hundred thousands to spend on the project with such a degree of risk. It is a new to the organisation business, there is a high chance of failure. Few of the possible reasons can be overstated or unrealistic customer figures; it may be illegal to destroy woodlands in the area. Also, the Trust, more likely than not, will have to apply for the planning permission for the stable conversion and the petrol tank installation, etc.
To continue I would like to remind that organizational aims are the long-term intentions of the organisation to develop in a certain way. Their purpose is to create a common vision which everyone in the organisation should work towards achieving. They use the language intended to motivate within the firm and to convince those outside it of the company’s sincerity and commitment. By accepting Winston’s proposal the Trust will be acting against its stated aims. If the Trust will decide in favour of quad biking facility it will have serious detrimental effect on the local wildlife and farming practices. It will be especially harmful for the re-introduction of red kites project, which is supported by the Trust.
An organisation’s aims should establish which stakeholder needs will be identified and considered when strategic policy is developed. Balancing the interests of stakeholders can be extremely difficult, if the aims of some of these groups conflict. The decision to continue with Winston’s proposal would undermine interests of existing stakeholders of the business, people who donated their money for the Trust to accomplish its organisational objectives.
The trust is a charitable organisation. Its ethical behaviour is its unique selling point (USP). It will be really difficult to continue it’s fund raising activities if its existing beneficiaries will be thinking that their money invested into some profitable business ventures. On the finance side the organisation may loose more than it gains, since it is currently receiving eight hundred thousands from donations only. Bad publicity may outset revenue from the project (800k vs. 750k).
The committee consists of people who look like they have strong ethical values. Introduction of unethical policy, which Winston’s proposal is, can create divisions within the organisation. One can even argue that by accepting the project the committee members would act in direct contradiction to morals which motivated the founder of the Wildlife Trust Doreen Barkwith.
To a large extent but not entirely the proposal made by Jonathan and Ingrid is a better option for the organisations long-term growth and objectives. However, the Winston’s proposal no doubt is a more financially sound one. Nevertheless, one needs to remember that ethics are the moral principles that should underpin decision-making. An ethical decision means doing what is morally right; it is not a matter of scientifically calculating costs and benefits. A decision made on ethical grounds might reject the most profitable solution in favour of one of greater benefit to society as well the firm.
On the other hand, we all have different world views and different interpretations of what is beneficial for society. Therefore, I would suggest a more democratic approach to the decision making or find a human solution, such as to use less noisy vehicles, go with a different proposal or even building indoor track course.