Essay Sample on Capital Budgeting Decisions: Allocating McDonald's Resources

Introduction

Capital budgeting decisions are essential in the strategic allocation of resources within organizations. Financial resources are allocated using various tools and techniques that assist the financial resources in achieving specific objectives. The CEO in McDonald's is tasked with the duty of allocation of financial resources in most areas related to capital budgeting. The most critical resource in McDonald's is labor because it assists in accomplishing most strategic goals. In the allocation of financial support, the company uses systematization showing the company perceives all the processes as the core for achieving long-term objectives. The research uses an analytical hierarchy process (AHP) in strategic planning for resource allocation and making capital budgeting decisions in McDonald's. The application of the systematic hierarchy process in the strategic allocation of financial resources in McDonald's is essential as it helps in determining different ways of making capital budgeting decisions within the firm.

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Decision Scenario

McDonald's is a food restaurant chain founded in the 1940s. The success of the company depends on the allocation of financial resources to the different departments and chains around the world. The company has been involved in the formulation of a detailed plan to continue its long-term financial resource allocation in the prices of budgeting. The financial controllers and human resource officers are involved in the formulation of the budgets with the help of the top executives (Deo, 2017). The organization completed a 3-year allocation program meant to improve the base operations in the organization.

The managers have to choose ways to allocate financial resources in the areas related to capital budgeting decision making. Using the analytic hierarchy process (AHP), the board of directors has to assign financial resources to all the departments (Luthra, Mangla, Xu &Diabat, 2016). The factors to consider in making decisions such as internal objectives, social environment, economic change, and financial analysis report results are essential in coming up with a conclusion on ways of allocating capital to all the departments within the firm. The strategy used helps in cutting administrative costs, equality in capital distribution, achieving technology growth, and developing experience of future restaurants.

Decision Hierarchy

McDonald's hierarchy in choosing the ways and benefits of allocating financial resources is shown in the figure below.

Choosing appropriate outcomes of allocating financial resources in McDonald's

Economic Changes

• Financial analysis report results
• Internal objectives
• Social Environment
• Developing experience of future restaurants
• Achieving technology growth
• Equality in capital distribution
• Cutting administrative cost

Figure 1: McDonald's decision hierarchy

In building the regime, there was a consideration of the measurement of different elements in McDonald's determining the allocation of resources. The decision-makers in McDonald's use the AHP in deciding priorities for areas to allocate the financial resources to maximize the overall benefits to the organization (Ho & Ma, 2018). The criteria established in the requirements, including internal objectives, social environment, economic changes, and financial analysis report results. The most suitable alternatives to select in the allocation of financial resources in McDonald's will depend on the criteria used in identifying the candidates.

Pairwise Comparisons

The alternatives to consider will include choosing between cutting administrative costs, equality in capital distribution, achieving technology growth, and developing experience of future restaurants. A comparison of two factors is made with reference to McDonald's to compare the importance of the criteria in reaching the set goal. For comparison purposes, the management in McDonald's will make a decision on the best outcome after allocating the financial resources. The strengths of the alternatives in meeting each criterion are supposed to be evaluated in McDonald's before deciding on the financial resources allocation.

Alternative Outcomes and Criteria Used

Internal Objectives

The management in McDonald's has to evaluate the alternatives with the internal goals. In McDonald's, the board uses a scale in measuring the importance of allocating financial resources concerning the internal purposes shown in the organization. The leaders in McDonald's will implement a plan in the capital budgeting process to establish a financial strength in the market. The process will require consideration of the goals set by McDonald's in each department before the allocation of the resources.

In cutting administrative costs, the internal objectives in McDonald's are in line with the reduction of the costs. The company has been using innovative solutions to eliminate using paperwork. The company has also shared marketing expenses with the other partnering companies in a bid to reduce administrative costs (Maritan& Lee, 2017). The international objectives have been core in increasing the profitability of the company. In terms of equality in the distribution of capital, the company has been distributing the resources uniformly in all departments. The departments are provided with an annual budget and funds allocated to handle all the projects. The internal objectives recommend the adoption of innovative processes, as shown by investment in research and development. Therefore, it is easy for the organization to achieve a higher level of technological growth from the goals meant to spark innovations. Also, the quality of the services offered is high, as shown by rapid product development. The reason for providing quality services is to develop an experience of the future of the company.

Cutting administrative costs have an advantage over creating quality in capital distribution because the internal objectives are skewed towards reducing the administrative costs. Also, the administrative costs are satisfied by the internal goals as compared to the technological growth initiative established by the company in the market after the allocation of financial resources. However, developing a better experience of future restaurants is more advantageous as compared to cutting administrative costs in the current market. Compared to quality in capital distribution with the achievement of growth technology, the internal objectives are stronger in the initiative meant to improve technological growth. The financial allocation initiative is best suited for developing experience of future restaurants as compared to the creation of equality in the capital distribution. Lastly, the formation of quality experiences for future restaurants is stronger than the outcomes related to achieving technological development because the organization is aimed towards allocation of finances to assist in serving good food and creating value to the customers in a friendly manner (Ho & Ma, 2018). As shown in the analysis, in the allocation of financial resources, more priority has to be placed on developing experiences for future restaurants. The funds can also be allocated to cut down the administrative expenses in the organization.

Social Environment

In the allocation of resources, the social environment plays a significant role because it cuts administrative costs. The population needs and customer profiles assist in determining the administrative costs to incur. In McDonald's, when the customers demand on a product is low, the administrative fee becomes lower because research on production capacities is reduced. The social environment affects equality in capital distribution. When the demographic data shows specific people within a particular surrounding consume specific products, McDonald's allocates financial resources to increase the production of the products, the equality in distribution is affected in return. The social environment is also well suited for achieving technological growth in the market. McDonald's uses the customer profile data and the consumption patterns of the population to determine the technological developments to create to maintain the demand. Therefore, more resources are allocated to such fields. Lastly, the social environment strongly affects the development of future objectives. The social surrounding develops a better experience of future restaurants because the people demands assist in maintaining the trends of development in McDonald's.

In comparison, cutting of administration cost is disadvantageous as compared to equality in capital distribution while allocating financial resources in McDonald's. The social environment determines the fairness of capital distribution more because the consumers advocate for quality products from all products offered by McDonald's. Technological growth is affected more as compared to administrative costs by the social environment. The financial allocation process merits technical activities as compared to the measures meant to reduce administrative costs. Similarly, the creation of positive future experiences is affected by social environments as compared to administrative costs. While allocating finances, the managers advocate for equality in capital distribution as compared to the technological development initiatives (Leiblein, Chen & Posen, 2017). Besides, comparing the development of future restaurant experiences and capital distribution, the social environment has more effects on capital distribution. The prospective customer experiences are also affected more as compared to technological development because the customers treasure the quality of the products offered by the company. Generally, the development of skills for future restaurants is more feasible because the social environment creates more advantages for McDonald's to satisfy prospective customers by allocating more financial resources.

Economic Changes

Economic shifts in commercial activities and the balance of trade affects the administrative costs of the branches of the company all over the world. Tariffs and inflation affect equality in capital distribution because it limits the budget allocated to the departments. The rates and price changes make it hard for the allocation of resources to handle technological changes (Busenbark, Wiseman, Arrfelt, & Woo, 2017). Also, in the development of future experiences, economic changes affect the sales and profits of the company because of the anticipation in the forthcoming changes.

Comparing administrative costs with the equality in capital distribution, it is evident economic changes create more advantages in fairness while distributing finances in McDonald's. Also, comparing administrative expenses with the achievement of technological growth, it is easy to note that economic changes create more advantages by creating technological developments as compared to a reduction of administrative costs (Nazari&Zamani, 2018). Similarly, developing better experiences for future restaurants in McDonald's is stronger as compared to administrative costs. In capital allocation, the economic changes affect the technological capacities, but the internal costs of administration are managed by the human resource managers within the organization. A comparison of quality in capital distribution and technological development shows economic changes affect the technological developments at a higher degree. Also, comparing the equality in capital distribution with developing experience of future restaurants, economic changes affect the development of future restaurants at a higher rate. In general, McDonald's prioritizes the development of future skills...