financial decision making
TRANSCRIPT
Principles of Financial Decision Making
Syed Abdul Rafey QadriApril 17, 2015
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Suggested Ground Rules …
Brainstorm freely; disagree openly, but courteously… it stimulates discussion & helps others ‘think aloud’!
Speak up, or you’ll be called upon to speak! Don’t take up more than your fair share of talk time Avoid side conversations, let all participants benefit! Keep discussions and comments relevant Don’t leave the room unless you have to Don’t interrupt Speak up with interesting & relevant ideas that will
add value Switch off cell phones!!! Others?
We Acknowledge use of Internet Sources in Preparation of this Presentation
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Why do we need to make Decision
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Availability of Options
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Basic Economic Principles - 1
People choose because of limited resources.
People’s choices involve costs. People respond to incentives in
predictable ways.
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Basic Economic Principles - 2
People create economic systems that influence individual choices and incentives.
People gain when they trade voluntarily
People’s choices have consequences that lie in the future
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Common Decision-Making Strategies
spontaneityChoosing the first option that comes to mind; giving little or no consideration to the consequences of the choice.
complianceGoing along with family, school, work, or peer expectations.
procrastinationPostponing thought and action until options are limited.
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Common Decision-Making Strategies
agonizingAccumulating so much information that analyzing the options becomes overwhelming.
intentionChoosing an option that will be both intellectually and emotionally satisfying.
desireChoosing the option that might achieve the best result, regardless of the risk involved.
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avoidanceChoosing the option that is most likely to avoid the worst
possible result.
securityChoosing the option that will bring some success, offend the
fewest people, and pose the least risk.
synthesisChoosing the option that has a good chance to succeed and which
you like the best.
Common Decision-Making StrategiesCommon Decision-Making Strategies
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T-Chart
Pros Cons
Using a T-chart to list pros and cons related to decisions can help make
the decision making process simple.
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Choosing Brand Name Jeans Over No-Name Jeans
ProsPros ConsCons
Better Fit Cost More
Popular people will notice me.
I will look just like everyone
else.Feel better
about myself.I can only afford one
pair.
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Financial ToolsTime Value of MoneyCost Benefit AnalysisTotal Cost of Ownership
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Time Value of Money
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Time Value of MoneyYesterday Today Tomorrow
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Present ValueFuture Value
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Most Powerful Formula
Fv= Pv(1+i)n
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Cost Benefit Analysis
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Things NOT desired
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Total Cost of Ownership
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Total Cost – I.T. Project
Acquisition Costs Operating Costs Change Costs
Software Obvious costs Obvious costs Hidden costs
Hardware Obvious costs Obvious costs Hidden costs
Personnel Hidden costs Hidden costs Hidden costs
NW & Comm Hidden costs Hidden costs Hidden costs
Facilities Hidden costs Hidden costs Hidden costs
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TCO – I.T. (Server only)
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TCO
3-Year Figures in 1,000s Proposed
AcquisitionBusinessas Usual
IncrementalDifferences
Total Cost of Ownership 14,256 17,258 (3,002) Capital Expenses (CAPEX) 1,219 707 511 Operating Expenses (OPEX) 13,037 16,550 (3,513) Net Cash Flow — — 2,981 Net Present Value @8% (NPV) — — 2,365 Internal Rate of Return (IRR) — — 121% Return on Investment (ROI) — — 24.9%
Payback Period — — 7 months
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InternalExternal
Controls
InternalExternal
Controls
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EXPERIENCES, COMMENTS,
QUESTIONS.
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Syed Abdul Rafey QadriMBA, CIA, AM(ACAMS), EA(ACFE)
(92 321) 3779015
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