Necessary Tools a Manager Requires to Allocate the Asset

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Organizations prepare plans to acquire and allocate an asset. This involves several phases and a critical evaluation of future profitability. Therefore, a manager designs a system to analyze future outcomes of an asset.

The main highlight of this framework will be to assess the necessary tools a manager (or organization) requires to allocate the asset. Furthermore, it illustrates whether the decision incorporates the future economical perspective. For the purpose, we assume that an organization has to make the decision for the allocation of a new asset.

What shall be analyzed by the managers to assess the necessity of new investment?

To determine the necessity for new Asset (or investment)
- Input costs of asset: it helps to determine whether the input cost have increased or decreased with the time
- Quality of production: production quality has improved or not
- Capacity to produce
To foresight future economical perspectives

Therefore, managers require tools to assess the necessity of new investments. Tools and analysis help managers assess the importance of transferring a current asset to an asset.

Asset allocation in different firms

Small organization: it is easier to determine the need for new assets.
- Easy availability of sources
Large organization requires much detailed information and it is difficult to evaluate the requirement
- Complex structure of the firm: it makes it difficult to allocate asset requirement

For this purpose, managers design procedures and plans to evaluate the requirement. These methods are collectively known as capital budgeting. The managers carefully determine whether it is beneficial for the company to convert its current asset to non-current asset by forecasting the future economical value.

Tools for asset allocation

Framework
Analytical tools
Guidelines

Use of tools

Tools may allow managers to determine whether the investment shall be done for expanding, repairing, or acquisition of a new asset. Once the manager has decided to invest in or purchase an asset they shall critically evaluate:

Payback
Discounted Cashflow
Internal rate of return

Asset allocation design provides a brief understanding of how an organization shall utilize its investment. Furthermore, it also provides an understanding of the future outcome. Therefore, managers and organizations will use it in an effective manner.

Performance

An organization analyzes its performance within the competitive environment to analyze its profitability. Therefore, the main highlight of this framework will be to analyze how the performance of an organization varies in the market. It shall further determine the factors that incorporate variances in the performance measures.

Organizations shall critically evaluate factors of the profit plan

Implication of profit plans
Strategies and policy

Tools

Linkage between markets

Market Inside: Organizations analyze transfer prices as a source to determine the linkage and profit plans of business as a performance measure.
- Transfer prices: to determine the prices being transferred within an organization.

Alternatives of transfer prices:

Market price
Variable cost
Full Cost
Full Cost Plus Profit
- Market Outside: It helps in assessing the long-term profitability of a business.

While analyzing the information in the market (inside) transfer prices are used as a source to address the financial performance. This is caused by the fact that transfer prices allow organizations to value and coordinate the workflow of the interdependent business.

Financial measures include profits, Residual Income, Market value, economic value added method
Non-financial measures

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Necessary Tools a Manager Requires to Allocate the Asset

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