The project has a positive net present value and therefore meets the financial criteria set by the organization. The project also makes sense strategically and improves the competitiveness of the organization. It should be accepted on those grounds as well.
While the capital budgeting process does reveal some issues within the organization, the time and place for resolving those issues is not during the capital budgeting process itself. Thus, a further recommendation is that Victoria Chemical focuses its energy on learning from this experience, and making its capital budgeting process better, and if need be the company could also make changes to its organizational design. Bear in mind that some of these issues arise because other divisions prefer not to have the Merseyside operation affect them negatively, as the heads of each of these divisions received bonuses based on the performance of their division. A system that encourages systems thinking and a focus on overall corporate objectives in the executives is something that needs to be addressed by Victoria's human resources department, not by Greystock.
A final recommendation is to take into consideration the long-term impacts of the loss of business that would occur as the result of shutting the plant. Greystock is assuming that the business will come back, but in a competitive marketplace that is not a reasonable assumption to make. It is more logical that the company assume some loss of business, and build that into the model. The Sales Department is going to need to make smarter contributions to the projections in this regard.
Overall, the recommendation from Greystock should be to proceed. He should discuss the other...
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