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Forecasting: Forecasting Is A Process of Predicting or Estimating The Future Based On Past and Present Data

The document discusses forecasting and decision making. Forecasting involves predicting future events based on past data and is important for planning. The key steps in forecasting are analyzing problems, collecting and analyzing data, estimating future events, and following up. Decision making involves selecting between alternatives and is a core management function. The main steps in decision making are identifying problems, analyzing issues, developing alternatives, and selecting and implementing solutions.

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Himanshu Dargan
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108 views

Forecasting: Forecasting Is A Process of Predicting or Estimating The Future Based On Past and Present Data

The document discusses forecasting and decision making. Forecasting involves predicting future events based on past data and is important for planning. The key steps in forecasting are analyzing problems, collecting and analyzing data, estimating future events, and following up. Decision making involves selecting between alternatives and is a core management function. The main steps in decision making are identifying problems, analyzing issues, developing alternatives, and selecting and implementing solutions.

Uploaded by

Himanshu Dargan
Copyright
© © All Rights Reserved
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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FORECASTING

Forecasting is a process of predicting or estimating the future based on past and present data.
Forecasting provides information about the potential future events and their consequences for
the organisation. It may not reduce the complications and uncertainty of the future. However, it
increases the confidence of the management to make important decisions.

Forecasting is the basis of premising. Forecasting is important to both planning and decision
making. Forecasting is used in a variety of areas such as: production planning, budgeting,
strategic planning, sales analysis, inventory control, marketing planning, logistics, planning and
purchasing among others.

Features of Forecasting

1. Forecasting in concerned with future events. It uses personal observations


2. It shows the probability of happening of future events.
3. It analysis past and present data. It uses statistical tools and techniques .

Steps in Forecasting

1. Analysing and understanding the problem: The manager must first identify the real problem
for which the forecast is to be made. This will help the manager to fix the scope of forecasting.
2. Developing sound foundation: The management can develop a sound foundation, for the future
after considering available information, experience, type of business, rate of development.
3. Collecting and analysing data: Data collection is time consuming. Only relevant data must be
kept. Many statistical tools can be used to analyse the data.
4. Estimating future events: The future events are estimated by using trend analysis. Trend
analysis makes provision for some errors.
5. Comparing results: The actual results are compared with the estimated results. If the actual
results tally with the estimated results, there is nothing to worry. In case of any major difference
between the actual and the estimates, it is necessary to find out the reasons for poor performance.
6. Follow up action: The forecasting process can be continuously improved and refined on the
basis of past experience. Areas of weaknesses can be improved for the future forecasting. There
must be regular feedback on past forecasting.
Importance of Forecasting

1. Forecasting provides relevant and reliable information about the past and present events and the likely
future events. This is necessary for sound planning.
2. It gives confidence to the managers for making important decisions.
3. It is the basis for making planning premises.
4. It keeps managers active and alert to face the challenges of future events and the changes in the
environment.

Limitations of Forecasting

1. The collection and analysis of data about the past, present and future involves a lot of time and money.
2. Many small firms don't do forecasting because of the high cost.
3. Forecasting can only estimate the future events. It cannot guarantee these events will take place in the
future.
4. Long-term forecasts will be less accurate as compared to short-term forecast.
5. Forecasting is based on certain assumptions. If these assumptions are wrong, the forecasting will be wrong.
6. Forecasting is based on past events. However, history may not repeat itself at all times.
7. Forecasting requires proper judgment and skills on the part of managers.

DECISION-MAKING

Decision-making is an essential aspect of management. It is a primary function of management.


Decisions are important as they determine both managerial & organizational actions. A
decision may be defined as "a course of action which is willfully chosen from among a set of
alternatives to achieve a desired result." It represents a well-balanced judgment and a
commitment to action. Thus, management is always a decision-making process.

According to Peter Drucker, "Whatever a manager does, he does through decision-making".


A manager has to take a decision before acting or before preparing a plan for execution.
Moreover, his ability is very often judged by the quality of decisions he takes.

According to R. C. Davis, "management is a decision-making process." Decision-making is an


intellectual process which involves selection of one course of action out of many alternatives.
According to Trewatha & Newport, "Decision-making is the selection of a course of action
from among two or more possible alternatives in order to get a solution for a given problem".

Characteristics of Decision Making

1. Decision making implies choice: Decision making is choosing from among two or more
alternative courses of action. It is the process of selection of one solution out of many
available. Managers have to consider these alternatives & select best one actual execution.
2. Continuous activity/process: Decision-making is a continuous and dynamic process. It
pervades all organizational activity. Managers have to take decisions on various policy and
administrative matters. It is a never ending activity in business management.
3. Mental/intellectual activity: Decision-making is a mental as well as intellectual
activity/process and requires knowledge, skills, experience and maturity on the part of
decision-maker. It is essentially a human activity.
4. Goal oriented process: Decision-making aims at providing a solution to a given problem/
difficulty before a business enterprise. It is a goal-oriented process and provides solutions to
problems faced by a business unit.
5. Time-consuming activity: Decision-making is a time-consuming activity as various aspects
need careful consideration before taking final decision. For decision makers, various steps
are required to be completed. This makes decision-making a time consuming activity.
6. Needs effective communication: Decision-taken needs to be communicated to all
concerned parties for suitable follow-up actions. Decisions taken will remain on paper if
they are not communicated to concerned persons. Following actions will not be possible in
the absence of effective communication.
7. Responsible job: Decision-making is a responsible job as wrong decisions prove to be too
costly to the Organisation. Decision-makers should be matured, experienced, knowledgeable
and rational in their approach. Decision-making need not be treated as routing and casual
activity. It is a delicate and responsible job.

Advantages of Decision Making


1. Decision making is the primary function of management : The functions of
management starts only when the top-level management takes strategic decisions. Without
decisions, actions will not be possible and the resources will not be put to use.
2. Decision-making facilitates the entire management process : Decision-making creates
proper background for the first management activity called planning. It gives concrete shape
to broad decisions about business objectives taken by the top-level management. It is
necessary conducting management functions organising, staffing, and communicating.
3. Decision-making is a continuous managerial function: Managers working at all levels
will have to take decisions as regards the functions assigned to them. Continuous decision
making is a must in the case of all managers/executives.
4. Decision-making is essential to face new problems and challenges : Decisions are
required to be taken regularly as new problems, difficulties and challenges develop before a
business enterprise. New products may come in the market, new competitors may enter the
market and government policies may change. Such change leads to new problems and new
decisions
5. Decision-making is a delicate and responsible job: Managers have to take quick and
correct decisions while discharging their duties. In fact, they are paid for their skill, maturity
and capacity of decision-making. Management activities are possible only when suitable
decisions are taken. Correct decisions provide opportunities of growth while wrong
decisions lead to loss and instability to a business unit.

Steps Involved In Decision Making Process


1. Identifying the Problem: Identification of the real problem before a business enterprise is
the first step in the process of decision-making. It is rightly said that a problem well-defined
is a problem half-solved. Information relevant to the problem should be gathered so that
critical analysis of the problem is possible.
2. Analyzing the Problem: After defining the problem, the next step in the decision-making
process is to analyze the problem in depth. This is necessary to classify the problem in order
to know who must take the decision and who must be informed about the decision taken.
3. Collecting Relevant Data: After defining the problem and analyzing its nature, the next
step is to obtain the relevant information/ data about it. All available information should be
utilised fully for analysis of the problem. This brings clarity to all aspects of the problem.
4. Developing Alternative Solutions: After the problem has been defined, diagnosed on the
basis of relevant information, the manager has to determine available alternative courses of
action that could be used to solve the problem.
5. Selecting the Best Solution: After preparing alternative solutions, the next step in the
decision-making process is to select an alternative that seems to be most rational for solving
the problem. The alternative selected must be communicated to those who are likely to be
affected by it.
6. Converting Decision into Action: After the selection of the best decision, the next step is
to convert the selected decision into an effective action. Without such action, the decision
will remain merely a declaration of good intentions. Here, the manager has to convert 'his
decision into 'their decision' through his leadership.

1. Ensuring Feedback: Feedback is the last step in the decision-making process. Here, the
manager has to make built-in arrangements to ensure feedback for continuously testing
actual developments against the expectations. It is like checking the effectiveness of
follow-up measures. Feedback is possible in the form of organised information, reports and
personal observations.

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