Abstract
This article aims to show that business plan risks are clearer and more consistent, compared with classical methodology, when evaluated through the multi-index methodology. To do so, it is necessary to identify the expectations of return and perceived risks in evaluating a business plan. To explain the above statement, we used a case example of a manufacturing unit of purses made of tilapia leather in the city of Campo Mourão, Paraná State, Brazil. Relevant information was collected through documenting research and semi-structured interviews, which were conducted in 2016 and 2017. The adoption of the cost leadership strategy, practicable due to the presence of local production arrangements, proved crucial to this project’s viability. Following this strategy, the demand, initial investments, production costs, and selling price were estimated. The multi-index methodology was used for the generation and analysis of the return indicators vis-à-vis the perceived risks. The multi-index methodology perceptual map signals a medium/high return (return on investment assets = 23.71% per year) and that the perceived risks are compatible with profit expectations. The sensitivity analysis of the results, using the Monte Carlo method, shows that P(net present value ≤ 0) ≈ 0.0002, thus corroborating the decision to invest in this business. This article contributes to the literature on the use of existing productive arrangements in various stages of the production and marketing process and the use of an analysis methodology that leads decision-makers to specify the risks associated with their decision.
Highlights
Many studies have been conducted in an attempt to understand how the expectations of return and perceived risks are identified when evaluating a business plan, demonstrating the importance and justification of the theme in this study (Bucciol et al, 2017; Zhang et al, 2018)
The essence of the multi-index methodology consists of (a) not incorporating the premium for the risk as a spread on the minimum attractiveness rate (MARR); (b) expressing the profitability of the project through added return resulting from the investment as an additional return beyond what would be received by the application of capital in low-risk securities; and (c) comparing the expected gains with the perceived risks of each project
The multi-index methodology has been validated by several studies, mainly with regard to decision-making processes in business plans (Bendlin et al, 2017; Harzer et al, 2016; Strapasson et al, 2018)
Summary
Many studies have been conducted in an attempt to understand how the expectations of return and perceived risks are identified when evaluating a business plan, demonstrating the importance and justification of the theme in this study (Bucciol et al, 2017; Zhang et al, 2018). One of the recent methodologies used to identify the expectations of return and perceived risks is the multi-index methodology, initially proposed by A. The multi-index methodology has been validated by several studies, mainly with regard to decision-making processes in business plans (Bendlin et al, 2017; Harzer et al, 2016; Strapasson et al, 2018)
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