Techniques used to assist in the location decision:
1. Profit estimates:
By Comparing the estimated revenues and cost of each location, site with highest annual
potential profit may be identified. Limitation Annual profit forecast alone have a limited use.
This means that capital cost of buying and developing the site must be profitable in the sense
that if a site offers 10% higher annual profit than an alternative location may be unlikely to be
chosen if the capital cost is 50% higher.
2. Investment appraisal:
Location decision involves a substantial capital investment. This appraisal may be used to
identify sites which have the highest potential return over a number of years. Payback method
can be used to estimate the location most likely to return original investment as quickly as
possible. Could be beneficial to any business with a capital shortage. Limitation: This requires
estimation of cost and revenue for a period of years for each potential location. There’s a
massive degree of inaccuracy and uncertainties in this form of quantitative decision making.
3. Break-even analysis:
Method of comparing two or more possible locations. Calculates level of production that must
be sold to reinvest equal total costs. Lower break even, better the site as you will regain all your
many invested quicker and start to gain higher profit. Limitations: this analysis should be uses
with caution and the normal limitations of this technique apply when using it to help make
Qualitative factors: these are the non-measurable factors that may influence business decisions.
Safety: Avoid potential risk to public and damage to the company reputation. Some businesses
are located in remote areas because of the potential damage they can cause.
Room of further expansion: May be expensive to relocate a business if the site proves to be too
small to accommodate and expansion of the business. If location has spare rooms or place in the
site, it can be considered for a long-term objective.
Manager’s preferences: A manager's preferences may be influenced in the location as they will
choose an appropriate sit they think will suit the business.
Ethical considerations: This must be in mind when choosing a location to have cleared that
depending where the business must be located in certain places. Make sure it’s doesn’t affect the environment and have clear if the business its isolated from other place to make it
accessible to employees to have access to it.
Environmental concerns: Business may be reluctant to set up in areas that is particularly
sensitive from and environmental viewpoint. Could lead to poor public relations and action from
Infrastructure:Quality of location will affect the business. Such as communication, accessibility
and transport links. Business