Long Term Examination of the Profitability Estimation Focused on Benefits
Strategic investment decisions are characterized by
high innovation potential and long-term effects on the
competitiveness of enterprises. Due to the uncertainty and risks
involved in this complex decision making process, the need arises for
well-structured support activities. A method that considers cost and
the long-term added value is the cost-benefit effectiveness estimation.
One of those methods is the “profitability estimation focused on
benefits – PEFB”-method developed at the Institute of Management
Cybernetics at RWTH Aachen University. The method copes with
the challenges associated with strategic investment decisions by
integrating long-term non-monetary aspects whilst also mapping the
chronological sequence of an investment within the organization’s
target system. Thus, this method is characterized as a holistic
approach for the evaluation of costs and benefits of an investment.
This participation-oriented method was applied to business
environments in many workshops. The results of the workshops are a
library of more than 96 cost aspects, as well as 122 benefit aspects.
These aspects are preprocessed and comparatively analyzed with
regards to their alignment to a series of risk levels. For the first time,
an accumulation and a distribution of cost and benefit aspects
regarding their impact and probability of occurrence are given. The
results give evidence that the PEFB-method combines precise
measures of financial accounting with the incorporation of benefits.
Finally, the results constitute the basics for using information
technology and data science for decision support when applying
within the PEFB-method.
[1] F. Alkaraan and D. Northcott, “Strategic capital investment decisionmaking:
A role for emergent analysis tools?,” Br. Account. Rev., vol.
38, no. 2, pp. 149–173, 2006. [2] V. M. Papadakis, “Do CEOs shape the process of making strategic
decisions? Evidence from Greece,” Manag. Decis., vol. 44, no. 3, pp.
367–394, Mar. 2006.
[3] Gorzeń-Mitka and M. Okręglicka, “Improving Decision Making in
Complexity Environment,” Procedia Econ. Finance, vol. 16, pp. 402–
409, 2014.
[4] C. Carr and C. Tomkins, “Context, culture and the role of the finance
function in strategic decisions. A comparative analysis of Britain,
Germany, the U.S.A. and Japan,” Manag. Account. Res., vol. 9, no. 2,
pp. 213–239, Jun. 1998.
[5] C. Carr, “Strategic investment decisions: the importance of SCM. A
comparative analysis of 51 case studies in U.K., U.S. and German
companies,” Manag. Account. Res., vol. 7, no. 2, pp. 199–217, 1996.
[6] F. T. Rothärmel, Strategic management, Second edition. New York, NY:
McGraw-Hill Education, 2015.
[7] T. M. Alessandri, D. N. Ford, D. M. Lander, K. B. Leggio, and M.
Taylor, “Managing risk and uncertainty in complex capital projects,” Q.
Rev. Econ. Finance, vol. 44, no. 5, pp. 751–767, Dec. 2004.
[8] K. D. Miller and H. G. Waller, “Scenarios, Real Options and Integrated
Risk Management,” Long Range Plann., vol. 36, no. 1, pp. 93–107, Feb.
2003.
[9] R. Slagmulder, W. Bruggeman, and L. van Wassenhove, “An empirical
study of capital budgeting practices for strategic investments in CIM
technologies,” PROECO Int. J. Prod. Econ., vol. 40, no. 2, pp. 121–152,
1995.
[10] R. W. Adler, “Strategic investment decision appraisal techniques: The
old and the new,” BUSHOR Bus. Horiz., vol. 43, no. 6, pp. 15–22, 2000.
[11] H. Siegwart and U. Singer, “Neues Verfahren für die
Wirtschaftlichkeitsbeurteilung von Investitionen in neue
Produktionstechnologien” Kostenrechnungspraxis Krp, vol. 2, pp. 63–
70, 1991.
[12] M. Schönheit, Wirtschaftliche Prozeßgestaltung: Entwicklung Fertigung
Auftragsabwicklung. Springer-Verlag, 2013.
[13] O. Itanyi, U. J. F. Ewurum, and W. I. Ukpere, “Evaluation of decision
making criteria with special reference to quantitative and qualitative
paradigms,” Afr. J. Bus. Manag., vol. 6, no. 44, pp. 11110–11117, 2012.
[14] P. F. Drucker, The Effective Executive: Effektivität und
Handlungsfähigkeit in der Führungsrolle gewinnen. München: Vahlen,
2014.
[15] J. DuBrin: Leadership: research findings, practice, and skills. Boston:
Houghton Mifflin, 2001.
[16] J. Bonito, Interaction and influence in small group decision making.
2014.
[17] O. Negulescu and E. Doval, “The Quality of Decision Making Process
Related to Organizations’ Effectiveness,” Procedia Econ. Finance, vol.
15, pp. 858–863, 2014.
[18] E. Savelsberg, Innovation in European freight transportation basics,
methodology and case studies for the European markets. Berlin;
London: Springer, 2008.
[19] D. Weydandt, Beteiligungsorientierte wirtschaftliche Bewertung von
technischen Investitionen für prozessorientierte Fertigungsinseln.
Aachen: Shaker, 2000.
[20] G. Sandahl and S. Sjögren, “Capital budgeting methods among
Sweden’s largest groups of companies. The state of the art and a
comparison with earlier studies,” Int. J. Prod. Econ., vol. 84, no. 1, pp.
51–69, Apr. 2003.
[21] A.-D. Socea, “Managerial Decision-Making and Financial Accounting
Information,” Procedia - Soc. Behav. Sci., vol. 58, pp. 47–55, Oct. 2012.
[22] R. Dekkers, “Impact of strategic decision making for outsourcing on
managing manufacturing,” Int. J. Oper. Prod. Manag., vol. 31, no. 9, pp.
935–965, Aug. 2011.
[23] T. Baines, “An integrated process for forming manufacturing technology
acquisition decisions,” Int. J. Oper. Prod. Manag., vol. 24, no. 5, pp.
447–467, May 2004.
[24] G. Frank, D. V. S. de Souza, J. L. D. Ribeiro, and M. E. Echeveste, “A
framework for decision-making in investment alternatives selection,”
Int. J. Prod. Res., vol. 51, no. 19, pp. 5866–5883, Oct. 2013.
[25] P. Miller and T. O’Leary, Capital budgeting, co-ordination and strategy:
A field study of inter-firm and intra-firm mechanisms. Oxford
University Press Oxford, 2005.
[26] F. H. M. Verbeeten, “Do organizations adopt sophisticated capital
budgeting practices to deal with uncertainty in the investment
decision?,” Manag. Account. Res., vol. 17, no. 1, pp. 106–120, Mar.
2006.
[27] N. Bryson, “Group decision-making and the analytic hierarchy process:
Exploring the consensus-relevant information content,” Comput. Oper.
Res., vol. 23, no. 1, pp. 27–35, Jan. 1996.
[28] E. Wallace and R. Rijamampianina, “Strategic decision making with
corporate emotional intelligence,” Probl. Perspect. Manag., vol. 3, pp.
83–91, 2005.
[29] H. Dincer, G. Gencer, N. Orhan, and K. Sahinbas, “The Significance of
Emotional Intelligence on the Innovative Work Behavior of Managers as
Strategic Decision-Makers,” Procedia - Soc. Behav. Sci., vol. 24, pp.
909–919, 2011.
[30] Kengpol and P. Boonkanit, “The decision support framework for
developing Ecodesign at conceptual phase based upon ISO/TR 14062,”
Int. J. Prod. Econ., vol. 131, no. 1, pp. 4–14, May 2011.
[31] D. Golmohammadi and M. Mellat-Parast, “Developing a grey-based
decision-making model for supplier selection,” Int. J. Prod. Econ., vol.
137, no. 2, pp. 191–200, Jun. 2012.
[32] F. Herrera, L. Martı́nez, and P. J. Sánchez, “Managing nonhomogeneous
information in group decision making,” Eur. J. Oper. Res.,
vol. 166, no. 1, pp. 115–132, Oct. 2005.
[33] Palomares, R. M. Rodríguez, and L. Martínez, “An attitude-driven web
consensus support system for heterogeneous group decision making,”
Expert Syst. Appl., vol. 40, no. 1, pp. 139–149, Jan. 2013.
[34] M. B. Barfod, K. B. Salling, and S. Leleur, “Composite decision support
by combining cost-benefit and multi-criteria decision analysis,” Decis.
Support Syst., vol. 51, no. 1, pp. 167–175, Apr. 2011.
[35] K. Nagel, Nutzen der Informationsverarbeitung: Methoden zur
Bewertung von strategischen Wettbewerbsvorteilen,
Produktivitätsverbesserungen und Kosteneinsparungen. München (u.a.):
Oldenbourg, 1988.
[36] H. J. Ott, “Wirtschaftlichkeitsanalyse von EDV-Investitionen mit dem
WARS-Modell am Beispiel der Einführung von CASE,”
Wirtschaftsinformatik, vol. 35, no. 6, pp. 522–531, 1993.
[37] R. Sell and R. Schimweg, Probleme lösen: in komplexen
Zusammenhängen denken ; mit 19 Tabellen. Berlin (u.a.): Springer,
2002.
[38] S. Printz, R. Vossen, and S. Jeschke, “Adaption of the profitability
estimation focused on benefits due to personal affection,” presented at
the Workshop on Assessment methodologies - energy, mobility and
other real world applications, Coimbra, to be published 2016
[1] F. Alkaraan and D. Northcott, “Strategic capital investment decisionmaking:
A role for emergent analysis tools?,” Br. Account. Rev., vol.
38, no. 2, pp. 149–173, 2006. [2] V. M. Papadakis, “Do CEOs shape the process of making strategic
decisions? Evidence from Greece,” Manag. Decis., vol. 44, no. 3, pp.
367–394, Mar. 2006.
[3] Gorzeń-Mitka and M. Okręglicka, “Improving Decision Making in
Complexity Environment,” Procedia Econ. Finance, vol. 16, pp. 402–
409, 2014.
[4] C. Carr and C. Tomkins, “Context, culture and the role of the finance
function in strategic decisions. A comparative analysis of Britain,
Germany, the U.S.A. and Japan,” Manag. Account. Res., vol. 9, no. 2,
pp. 213–239, Jun. 1998.
[5] C. Carr, “Strategic investment decisions: the importance of SCM. A
comparative analysis of 51 case studies in U.K., U.S. and German
companies,” Manag. Account. Res., vol. 7, no. 2, pp. 199–217, 1996.
[6] F. T. Rothärmel, Strategic management, Second edition. New York, NY:
McGraw-Hill Education, 2015.
[7] T. M. Alessandri, D. N. Ford, D. M. Lander, K. B. Leggio, and M.
Taylor, “Managing risk and uncertainty in complex capital projects,” Q.
Rev. Econ. Finance, vol. 44, no. 5, pp. 751–767, Dec. 2004.
[8] K. D. Miller and H. G. Waller, “Scenarios, Real Options and Integrated
Risk Management,” Long Range Plann., vol. 36, no. 1, pp. 93–107, Feb.
2003.
[9] R. Slagmulder, W. Bruggeman, and L. van Wassenhove, “An empirical
study of capital budgeting practices for strategic investments in CIM
technologies,” PROECO Int. J. Prod. Econ., vol. 40, no. 2, pp. 121–152,
1995.
[10] R. W. Adler, “Strategic investment decision appraisal techniques: The
old and the new,” BUSHOR Bus. Horiz., vol. 43, no. 6, pp. 15–22, 2000.
[11] H. Siegwart and U. Singer, “Neues Verfahren für die
Wirtschaftlichkeitsbeurteilung von Investitionen in neue
Produktionstechnologien” Kostenrechnungspraxis Krp, vol. 2, pp. 63–
70, 1991.
[12] M. Schönheit, Wirtschaftliche Prozeßgestaltung: Entwicklung Fertigung
Auftragsabwicklung. Springer-Verlag, 2013.
[13] O. Itanyi, U. J. F. Ewurum, and W. I. Ukpere, “Evaluation of decision
making criteria with special reference to quantitative and qualitative
paradigms,” Afr. J. Bus. Manag., vol. 6, no. 44, pp. 11110–11117, 2012.
[14] P. F. Drucker, The Effective Executive: Effektivität und
Handlungsfähigkeit in der Führungsrolle gewinnen. München: Vahlen,
2014.
[15] J. DuBrin: Leadership: research findings, practice, and skills. Boston:
Houghton Mifflin, 2001.
[16] J. Bonito, Interaction and influence in small group decision making.
2014.
[17] O. Negulescu and E. Doval, “The Quality of Decision Making Process
Related to Organizations’ Effectiveness,” Procedia Econ. Finance, vol.
15, pp. 858–863, 2014.
[18] E. Savelsberg, Innovation in European freight transportation basics,
methodology and case studies for the European markets. Berlin;
London: Springer, 2008.
[19] D. Weydandt, Beteiligungsorientierte wirtschaftliche Bewertung von
technischen Investitionen für prozessorientierte Fertigungsinseln.
Aachen: Shaker, 2000.
[20] G. Sandahl and S. Sjögren, “Capital budgeting methods among
Sweden’s largest groups of companies. The state of the art and a
comparison with earlier studies,” Int. J. Prod. Econ., vol. 84, no. 1, pp.
51–69, Apr. 2003.
[21] A.-D. Socea, “Managerial Decision-Making and Financial Accounting
Information,” Procedia - Soc. Behav. Sci., vol. 58, pp. 47–55, Oct. 2012.
[22] R. Dekkers, “Impact of strategic decision making for outsourcing on
managing manufacturing,” Int. J. Oper. Prod. Manag., vol. 31, no. 9, pp.
935–965, Aug. 2011.
[23] T. Baines, “An integrated process for forming manufacturing technology
acquisition decisions,” Int. J. Oper. Prod. Manag., vol. 24, no. 5, pp.
447–467, May 2004.
[24] G. Frank, D. V. S. de Souza, J. L. D. Ribeiro, and M. E. Echeveste, “A
framework for decision-making in investment alternatives selection,”
Int. J. Prod. Res., vol. 51, no. 19, pp. 5866–5883, Oct. 2013.
[25] P. Miller and T. O’Leary, Capital budgeting, co-ordination and strategy:
A field study of inter-firm and intra-firm mechanisms. Oxford
University Press Oxford, 2005.
[26] F. H. M. Verbeeten, “Do organizations adopt sophisticated capital
budgeting practices to deal with uncertainty in the investment
decision?,” Manag. Account. Res., vol. 17, no. 1, pp. 106–120, Mar.
2006.
[27] N. Bryson, “Group decision-making and the analytic hierarchy process:
Exploring the consensus-relevant information content,” Comput. Oper.
Res., vol. 23, no. 1, pp. 27–35, Jan. 1996.
[28] E. Wallace and R. Rijamampianina, “Strategic decision making with
corporate emotional intelligence,” Probl. Perspect. Manag., vol. 3, pp.
83–91, 2005.
[29] H. Dincer, G. Gencer, N. Orhan, and K. Sahinbas, “The Significance of
Emotional Intelligence on the Innovative Work Behavior of Managers as
Strategic Decision-Makers,” Procedia - Soc. Behav. Sci., vol. 24, pp.
909–919, 2011.
[30] Kengpol and P. Boonkanit, “The decision support framework for
developing Ecodesign at conceptual phase based upon ISO/TR 14062,”
Int. J. Prod. Econ., vol. 131, no. 1, pp. 4–14, May 2011.
[31] D. Golmohammadi and M. Mellat-Parast, “Developing a grey-based
decision-making model for supplier selection,” Int. J. Prod. Econ., vol.
137, no. 2, pp. 191–200, Jun. 2012.
[32] F. Herrera, L. Martı́nez, and P. J. Sánchez, “Managing nonhomogeneous
information in group decision making,” Eur. J. Oper. Res.,
vol. 166, no. 1, pp. 115–132, Oct. 2005.
[33] Palomares, R. M. Rodríguez, and L. Martínez, “An attitude-driven web
consensus support system for heterogeneous group decision making,”
Expert Syst. Appl., vol. 40, no. 1, pp. 139–149, Jan. 2013.
[34] M. B. Barfod, K. B. Salling, and S. Leleur, “Composite decision support
by combining cost-benefit and multi-criteria decision analysis,” Decis.
Support Syst., vol. 51, no. 1, pp. 167–175, Apr. 2011.
[35] K. Nagel, Nutzen der Informationsverarbeitung: Methoden zur
Bewertung von strategischen Wettbewerbsvorteilen,
Produktivitätsverbesserungen und Kosteneinsparungen. München (u.a.):
Oldenbourg, 1988.
[36] H. J. Ott, “Wirtschaftlichkeitsanalyse von EDV-Investitionen mit dem
WARS-Modell am Beispiel der Einführung von CASE,”
Wirtschaftsinformatik, vol. 35, no. 6, pp. 522–531, 1993.
[37] R. Sell and R. Schimweg, Probleme lösen: in komplexen
Zusammenhängen denken ; mit 19 Tabellen. Berlin (u.a.): Springer,
2002.
[38] S. Printz, R. Vossen, and S. Jeschke, “Adaption of the profitability
estimation focused on benefits due to personal affection,” presented at
the Workshop on Assessment methodologies - energy, mobility and
other real world applications, Coimbra, to be published 2016
@article{"International Journal of Business, Human and Social Sciences:71960", author = "Stephan Printz and Kristina Lahl and René Vossen and Sabina Jeschke", title = "Long Term Examination of the Profitability Estimation Focused on Benefits", abstract = "Strategic investment decisions are characterized by
high innovation potential and long-term effects on the
competitiveness of enterprises. Due to the uncertainty and risks
involved in this complex decision making process, the need arises for
well-structured support activities. A method that considers cost and
the long-term added value is the cost-benefit effectiveness estimation.
One of those methods is the “profitability estimation focused on
benefits – PEFB”-method developed at the Institute of Management
Cybernetics at RWTH Aachen University. The method copes with
the challenges associated with strategic investment decisions by
integrating long-term non-monetary aspects whilst also mapping the
chronological sequence of an investment within the organization’s
target system. Thus, this method is characterized as a holistic
approach for the evaluation of costs and benefits of an investment.
This participation-oriented method was applied to business
environments in many workshops. The results of the workshops are a
library of more than 96 cost aspects, as well as 122 benefit aspects.
These aspects are preprocessed and comparatively analyzed with
regards to their alignment to a series of risk levels. For the first time,
an accumulation and a distribution of cost and benefit aspects
regarding their impact and probability of occurrence are given. The
results give evidence that the PEFB-method combines precise
measures of financial accounting with the incorporation of benefits.
Finally, the results constitute the basics for using information
technology and data science for decision support when applying
within the PEFB-method.", keywords = "Cost-benefit analysis, multi-criteria decision,
profitability estimation focused on benefits, risk and uncertainty
analysis.", volume = "9", number = "12", pages = "4342-9", }
