Question

Provide an explanation for the internal process perspective. Include a business example which illustrates one (1) of the internal processes. Explain how the internal process affects the efficiency and effectiveness for a company in comparison to its competitors. Explain how to compute the net present value method. Explain when a result would be rejected or accepted using the net present value method.

Answer 1

Internal process perspective helps organisation in managing its internal process and delivering value to Customer. Under this approach if internal process are managed well it will lead to better products and services to satisfy customers. Usually the Key Performance Indicators (KPIs) are defined to measure Internal process excellence. Such KPI is monitored regularly so that continuous improvements keeps happening.

Some examples of Internal process perspective include:

• Process improvements - Better way of executing things- approval process, capex process, etc
• Quality improvements- Get things first time right and reduce wastage, defect ,etc
• Innovation- Innovation in pipeline and getting launched On time and in full

There are so many processes in an organisation operating at different levels. It is therefore important to focus on these processes that is in alignment with the strategy and differentiates us from the competitor organisation. A regular review of internal process can give strength to the organisation in terms of excelling in certain parameter sand giving competitive edge say in terms of cost, execution or scale benefits. Many organisation fail to deliver at times due to lack of alignment in internal process. Hence managing internal business process becomes utmost important in today's world. For example, a Fast moving consumer goods company can take advantage of its distribution network and launch new products to counter competitor launching new product in market. This will lead to efficiency in its distribution network and effectively help in countering competitor launch.

Net Present Value (NPV)

Net Present Value is a method of evaluation of Capital Budgeting proposal where the Annual Cash inflow is discounted to present value based on the discounting factor. This discounting factor can be borrowing rate or Cost of capital or a hurdle rate which is decided by management. Net Present value considers the timing of each cash flow and hence discounting is done to compare it in terms of Present value

If the Present value of discounted Cash inflow is higher than Initial Investment or Present value of discounted cash outflow project is accepted since returns are positive. If the Present value of discounted cash inflow is lower than initial investment or Present value of discounted cash outflow project is rejected since returns are negative

Net Present value is a widely used Capital Budgeting tool in today's world. Project with positive returns are accepted favorably and Negative returns are rejected.