How can We Make This Work? Understanding and Responding to Working Parents of Children with Autism 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 How can We Make This Work? Understanding and Responding to Working Parents of Children with Autism case study

At Oak Spring University, we provide corporate level professional Net Present Value (NPV) case study solution. How can We Make This Work? Understanding and Responding to Working Parents of Children with Autism case study is a Harvard Business School (HBR) case study written by Charles R. Stoner, Julia B. Stoner. The How can We Make This Work? Understanding and Responding to Working Parents of Children with Autism (referred as “Asd Autism” from here on) case study provides evaluation & decision scenario in field of Leadership & Managing People. It also touches upon business topics such as - Value proposition, Personnel policies, Time management, 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 How can We Make This Work? Understanding and Responding to Working Parents of Children with Autism Case Study

As autism spectrum disorder (ASD) escalates in prevalence, organizations are likely to encounter employees whose lives are touched and reframed by this intense, pervasive, and lifelong condition. Families are dramatically affected as emotional and financial challenges are heightened. Employees want and need to remain productive members of their organizations, but some adjustments are necessary. However, little is known regarding the needs and expectations of employees whose children have been diagnosed with ASD. Even less is known about how organizations, managers, and co-workers can respond to provide sensitivity, maintain overall team equity, and ensure high-quality performance. This article reports the results of an in-depth study of working parents of children with ASD as they openly and candidly share perspectives on workplace needs and accommodations. Employees--adamant that performance expectations should not be mitigated--discussed the support and the primary accommodation they sought: flexibility. Guides for both managers and co-workers are offered herein.

Case Authors : Charles R. Stoner, Julia B. Stoner

Topic : Leadership & Managing People

Related Areas : Personnel policies, Time management, Work-life balance

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Calculating Net Present Value (NPV) at 6% for How can We Make This Work? Understanding and Responding to Working Parents of Children with Autism Case Study

Years	Cash Flow	Net Cash Flow	Cumulative     Cash Flow	Discount Rate @ 6 %	Discounted Cash Flows
Year 0	(10002141)	-10002141	-	-
Year 1	3456968	-6545173	3456968	0.9434	3261291
Year 2	3956039	-2589134	7413007	0.89	3520861
Year 3	3975431	1386297	11388438	0.8396	3337849
Year 4	3237644	4623941	14626082	0.7921	2564517
TOTAL			14626082		12684517

The Net Present Value at 6% discount rate is 2682376

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

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

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Formula and Steps to Calculate Net Present Value (NPV) of How can We Make This Work? Understanding and Responding to Working Parents of Children with Autism

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 Leadership & Managing People 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 Asd Autism 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 Asd Autism 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	(10002141)	-10002141	-	-
Year 1	3456968	-6545173	3456968	0.8696	3006059
Year 2	3956039	-2589134	7413007	0.7561	2991334
Year 3	3975431	1386297	11388438	0.6575	2613910
Year 4	3237644	4623941	14626082	0.5718	1851133
TOTAL					10462437

The Net NPV after 4 years is 460296

(10462437 - 10002141 )

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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	(10002141)	-10002141	-	-
Year 1	3456968	-6545173	3456968	0.8333	2880807
Year 2	3956039	-2589134	7413007	0.6944	2747249
Year 3	3975431	1386297	11388438	0.5787	2300597
Year 4	3237644	4623941	14626082	0.4823	1561364
TOTAL					9490016

The Net NPV after 4 years is -512125

At 20% discount rate the NPV is negative (9490016 - 10002141 ) so ideally we can't select the project if macro and micro factors don't allow financial managers of Asd Autism 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 Asd Autism has a NPV value higher than Zero then finance managers at Asd Autism 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 Asd Autism, then the stock price of the Asd Autism 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 Asd Autism 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 –

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 can impact the cash flow of the project.

Understanding of risks involved in the project.

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

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

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 How can We Make This Work? Understanding and Responding to Working Parents of Children with Autism

References & Further Readings

Charles R. Stoner, Julia B. Stoner (2018), "How can We Make This Work? Understanding and Responding to Working Parents of Children with Autism Harvard Business Review Case Study. Published by HBR Publications.