Bramer Corporation’s controller, Mara Jossen, was asked to prepare a capital inv
ID: 2491897 • Letter: B
Question
Bramer Corporation’s controller, Mara Jossen, was asked to prepare a capital investment analysis for a robot-guided aluminum window machine. This machine would automate the entire window-casing manufacturing line. She has just returned from an international seminar on the subject of qualitative inputs into the capital investment decision process and is eager to incorporate those new ideas into the analysis. In addition to the normal net present value analysis (which produced a significant negative result), Jossen factored in figures for customer satisfaction, scrap reduction, reduced inventory needs, and reputation for quality. With the additional information included, the analysis produced a positive response to the decision question. When the chief financial officer finished reviewing Jossen’s work, he threw the papers on the floor and said, “What kind of garbage is this! You know it’s impossible to quantify such things as customer satisfaction and reputation for quality. How do you expect me to go to the board of directors and explain your work? I want you to redo the entire analysis and follow only the traditional approach to net present value. Get it back to me in two hours!” What is Jossen’s dilemma? What ethical courses of action are available to her?Explanation / Answer
Facts of the case:
1)Firstly, what CFO said that some things in life can't be quantified is exactly right and he cannot explain such things like customer satisfaction and reputation of quality to board of directors.
2)Mara Jossen has prepared investment analysis in which Net Present Value is negataive and it has become positive only after considering qualitative inputs.
Impact:
A project should not be accepted if its NPV is negative.But its qualitative aspects should not be ignored.If it helps the organisation in getting more customer satisfaction,reputation for quality ,Evaluating such qualitative factors when making decisions requires a measure of personal judgment, which is different for every decision-maker. If customer satisfaction,reputation for quality is important to you, you may choose to expand the business in spite of the negative NPV.
Course of Action to Mara Jasson:
She has to explain the CFO,if possible to Board of directors the viability of such investment in terms of qualitative aspects.So that they take the decisions based on their personal judgement.