Overview of Cost-Benefit Analysis
Write about the Cost-Benefit Analysis for Woolworth Limited.
A cost-benefit analysis can be defined as a process through feasibility of business decisions is evaluated. In this process, comparison of cost and benefits or savings is done which are associated with the business-related action (Ferwerda, 2014). This is primarily used for financial analysis, however a cost-benefit analysis is not restricted to monetary considerations only. It is generally inclusive of those environmental as well as social costs and benefits which can be quantified in a reasonable manner (Hastings, 2015).
In accordance with the recent articles, ‘Woolworths’ is proposing Supermarket rollout program in order to focus on renewing our existing stores. This change will assist them to earn a huge customer base.
A collapse of the considerable items is established below representing the given areas of consideration at the time of review:
- Costs related to the adoption of the new operating model and associated strategic amendments of $155 million ($110 million after-tax)
- Costs related with the assessment of General Merchandise inclusive of the strategic changes, asset impairment, writing down of goodwill of EziBuy, store footprint and other intangibles of $460 million ($407 million after-tax) (Woolworths: Update on Operating Model Review, 2016).
- Costs related to the termination of under progressing stores or loss-making or the termination or delay of pipeline stores worth $344 million ($248 million after-tax)
In case if ‘Woolworths’ applies for Supermarket rollout program, there will be a reduction in operational costs, For instance, payroll expenditure will be decreased if the business release certain employees. Similarly, the operations which are outsourced are generally less costly as compared to internal labour (Woolworths: Update on Operating Model Review, 2016).. When business makes a reduction in the management layers at the time of restricting, decision-making, communication generally develop (Annual report of Woolworth, 2017). Thus, business restructuring held to establish new techniques might be benefitted from increased efficiencies of operations. For example, records turn out to be relevant and simplified access if the business adopts a filing system that is computerized. .
The store of Woolsworth of renewal program was core factor for FY17 with an average total of 72 inclusive of 91 new stores established recently. June was said to be a busy month for a Woolsworth team with the launching of 23 Renewal stores throughout the country inclusive of newly launched stores in Keysborough South VIC, Wodonga VIC and Eatons Hill QLD. Further, the company has also established Woolworths Metro stores in the current year, with high convenience while providing a relative 17% sales growth (Annual report of Woolworth, 2017).
Figure 1: Growth of company through a developed plan
(Source: Annual report of Woolworth, 2017)
It is expected that this project will provide benefit to the next 5 years thus net returns will be as follows:
|
Particulars |
Amount in 2017 |
Future cash flows |
||||
|
Revenue in AUD millions in 2017 |
55,668 |
65,132 |
76,204 |
89,159 |
104,316 |
122,049 |
|
Net profit margin |
2.75% |
2.75% |
2.75% |
2.75% |
2.75% |
2.75% |
|
Net profit in AUD millions in 2017 |
1,534 |
1,791 |
2,096 |
2,452 |
2,869 |
3,356 |
|
Growth in Net profit |
257 |
304 |
356 |
417 |
488 |
Analysis and Conclusion
It can be concluded that the decision of company is viable when it comes to cost analyses structure. The company will be benefitted from this change, and the benefit is not limited to a current year as it is for long-term. The projected benefit is higher in comparison to costs, due to which the decision taken by the company is cost-effective and relevant.
References
Annual report of Woolworth, 2017. [Pdf]. Available through <https://www.woolworthsgroup.com.au/icms_docs/188795_annual-report-2017.pdf>. [Accessed on 30th April 2018].
Ferwerda, J., 2014. Cost-benefit analysis. Chapters, pp.1-1.
Hastings, N.A.J., 2015. Cost–Benefit Analysis. In Physical Asset Management (pp. 239-248). Springer, Cham.
Woolworths: Update on Operating Model Review, 2016. [Online]. Available through <https://www.4-traders.com/WOOLWORTHS-LIMITED-6491360/news/Woolworths-Update-on-Operating-Model-Review-22742526/>. [Accessed on 30th April 2018].
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