Social Media Strategies for Better Work-Life Engagement: Boundary Management in Cyberspace Net Present Value (NPV) / MBA Resources

Introduction to Net Present Value (NPV) - What is Net Present Value (NPV) ? How it impacts financial decisions regarding project management?

NPV solution for Social Media Strategies for Better Work-Life Engagement: Boundary Management in Cyberspace case study

At Oak Spring University, we provide corporate level professional Net Present Value (NPV) case study solution. Social Media Strategies for Better Work-Life Engagement: Boundary Management in Cyberspace case study is a Harvard Business School (HBR) case study written by Nancy Rothbard. The Social Media Strategies for Better Work-Life Engagement: Boundary Management in Cyberspace (referred as “Cyberspace Engagement” from here on) case study provides evaluation & decision scenario in field of Technology & Operations. It also touches upon business topics such as - Value proposition, IT, Social platforms, Strategy, Work-life balance.

The net present value (NPV) of an investment proposal is the present value of the proposal’s net cash flows less the proposal’s initial cash outflow. If a project’s NPV is greater than or equal to zero, the project should be accepted.

NPV = Present Value of Future Cash Flows LESS Project’s Initial Investment

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Case Description of Social Media Strategies for Better Work-Life Engagement: Boundary Management in Cyberspace Case Study

Revealing aspects of your personal life at work can impact your respect and likability, both of which affect motivation and engagement levels, and consequently future hireability and promotability. However, how much you choose to disclose about yourself at work is made more complicated by today's blurred social media realities, as the author's research on the topic reveals. When people feel pressured to share personal lives, or at least don't feel in full control of their disclosures, their engagement, motivation and sense of belonging can be lower. This article suggests the key steps and strategies to follow in order to harness the power of social media and avoid the potential pitfalls when managing the boundaries between personal and professional lives in cyberspace.

Case Authors : Nancy Rothbard

Topic : Technology & Operations

Related Areas : IT, Social platforms, Strategy, Work-life balance

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Calculating Net Present Value (NPV) at 6% for Social Media Strategies for Better Work-Life Engagement: Boundary Management in Cyberspace Case Study

Years	Cash Flow	Net Cash Flow	Cumulative     Cash Flow	Discount Rate @ 6 %	Discounted Cash Flows
Year 0	(10022980)	-10022980	-	-
Year 1	3469108	-6553872	3469108	0.9434	3272743
Year 2	3960427	-2593445	7429535	0.89	3524766
Year 3	3970878	1377433	11400413	0.8396	3334026
Year 4	3228649	4606082	14629062	0.7921	2557392
TOTAL			14629062		12688927

The Net Present Value at 6% discount rate is 2665947

In isolation the NPV number doesn't mean much but put in right context then it is one of the best method to evaluate project returns. In this article we will cover -

Different methods of capital budgeting

What is NPV & Formula of NPV,
How it is calculated,
How to use NPV number for project evaluation, and
Scenario Planning given risks and management priorities.

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Capital Budgeting Approaches

Methods of Capital Budgeting

There are four types of capital budgeting techniques that are widely used in the corporate world –

1. Payback Period
2. Profitability Index
3. Internal Rate of Return
4. Net Present Value

Apart from the Payback period method which is an additive method, rest of the methods are based on Discounted Cash Flow technique. Even though cash flow can be calculated based on the nature of the project, for the simplicity of the article we are assuming that all the expected cash flows are realized at the end of the year.

Discounted Cash Flow approaches provide a more objective basis for evaluating and selecting investment projects. They take into consideration both –

1. Timing of the expected cash flows – stockholders of Cyberspace Engagement have higher preference for cash returns over 4-5 years rather than 10-15 years given the nature of the volatility in the industry.
2. Magnitude of both incoming and outgoing cash flows – Projects can be capital intensive, time intensive, or both. Cyberspace Engagement shareholders have preference for diversified projects investment rather than prospective high income from a single capital intensive project.

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Formula and Steps to Calculate Net Present Value (NPV) of Social Media Strategies for Better Work-Life Engagement: Boundary Management in Cyberspace

NPV = Net Cash In Flowt1 / (1+r)t1 + Net Cash In Flowt2 / (1+r)t2 + … Net Cash In Flowtn / (1+r)tn
Less Net Cash Out Flowt0 / (1+r)t0

Where t = time period, in this case year 1, year 2 and so on.
r = discount rate or return that could be earned using other safe proposition such as fixed deposit or treasury bond rate. Net Cash In Flow – What the firm will get each year.
Net Cash Out Flow – What the firm needs to invest initially in the project.

Step 1 – Understand the nature of the project and calculate cash flow for each year.
Step 2 – Discount those cash flow based on the discount rate.
Step 3 – Add all the discounted cash flow.
Step 4 – Selection of the project

Why Technology & Operations Managers need to know Financial Tools such as Net Present Value (NPV)?

In our daily workplace we often come across people and colleagues who are just focused on their core competency and targets they have to deliver. For example marketing managers at Cyberspace Engagement often design programs whose objective is to drive brand awareness and customer reach. But how that 30 point increase in brand awareness or 10 point increase in customer touch points will result into shareholders’ value is not specified.

To overcome such scenarios managers at Cyberspace Engagement needs to not only know the financial aspect of project management but also needs to have tools to integrate them into part of the project development and monitoring plan.

Calculating Net Present Value (NPV) at 15%

After working through various assumptions we reached a conclusion that risk is far higher than 6%. In a reasonably stable industry with weak competition - 15% discount rate can be a good benchmark.

Years	Cash Flow	Net Cash Flow	Cumulative     Cash Flow	Discount Rate @ 15 %	Discounted Cash Flows
Year 0	(10022980)	-10022980	-	-
Year 1	3469108	-6553872	3469108	0.8696	3016616
Year 2	3960427	-2593445	7429535	0.7561	2994652
Year 3	3970878	1377433	11400413	0.6575	2610917
Year 4	3228649	4606082	14629062	0.5718	1845991
TOTAL					10468175

The Net NPV after 4 years is 445195

(10468175 - 10022980 )

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Calculating Net Present Value (NPV) at 20%

If the risk component is high in the industry then we should go for a higher hurdle rate / discount rate of 20%.

Years	Cash Flow	Net Cash Flow	Cumulative     Cash Flow	Discount Rate @ 20 %	Discounted Cash Flows
Year 0	(10022980)	-10022980	-	-
Year 1	3469108	-6553872	3469108	0.8333	2890923
Year 2	3960427	-2593445	7429535	0.6944	2750297
Year 3	3970878	1377433	11400413	0.5787	2297962
Year 4	3228649	4606082	14629062	0.4823	1557026
TOTAL					9496208

The Net NPV after 4 years is -526772

At 20% discount rate the NPV is negative (9496208 - 10022980 ) so ideally we can't select the project if macro and micro factors don't allow financial managers of Cyberspace Engagement to discount cash flow at lower discount rates such as 15%.

Acceptance Criteria of a Project based on NPV

Simplest Approach – If the investment project of Cyberspace Engagement has a NPV value higher than Zero then finance managers at Cyberspace Engagement can ACCEPT the project, otherwise they can reject the project. This means that project will deliver higher returns over the period of time than any alternate investment strategy.

In theory if the required rate of return or discount rate is chosen correctly by finance managers at Cyberspace Engagement, then the stock price of the Cyberspace Engagement should change by same amount of the NPV. In real world we know that share price also reflects various other factors that can be related to both macro and micro environment.

In the same vein – accepting the project with zero NPV should result in stagnant share price. Finance managers use discount rates as a measure of risk components in the project execution process.

Sensitivity Analysis

Project selection is often a far more complex decision than just choosing it based on the NPV number. Finance managers at Cyberspace Engagement should conduct a sensitivity analysis to better understand not only the inherent risk of the projects but also how those risks can be either factored in or mitigated during the project execution. Sensitivity analysis helps in –

Understanding of risks involved in the project.

What can impact the cash flow of the project.

What will be a multi year spillover effect of various taxation regulations.

What are the uncertainties surrounding the project Initial Cash Outlay (ICO’s). ICO’s often have several different components such as land, machinery, building, and other equipment.

What are the key aspects of the projects that need to be monitored, refined, and retuned for continuous delivery of projected cash flows.

Some of the assumptions while using the Discounted Cash Flow Methods –

Projects are assumed to be Mutually Exclusive – This is seldom the came in modern day giant organizations where projects are often inter-related and rejecting a project solely based on NPV can result in sunk cost from a related project.

Independent projects have independent cash flows – As explained in the marketing project – though the project may look independent but in reality it is not as the brand awareness project can be closely associated with the spending on sales promotions and product specific advertising.

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Negotiation Strategy of Social Media Strategies for Better Work-Life Engagement: Boundary Management in Cyberspace

References & Further Readings

Nancy Rothbard (2018), "Social Media Strategies for Better Work-Life Engagement: Boundary Management in Cyberspace Harvard Business Review Case Study. Published by HBR Publications.