Page 77 - DCOM102_DMGT101_PRINCIPLES_AND_PRACTICES_OF_MANAGEMENT

Unit 4: Forecasting and Premising

4.1.1 Essential Components in Business Forecasting Notes

Redfield, in a famous article in Harvard Business Review, identified the following essential
elements in business forecasting:
1. Developing the groundwork: The known and available information regarding the growth
of the company, the industry in which the company is positioned, the growth of the
product lines of the company, etc., is put to investigation in the first stage. The basic
purpose is to prepare a ground work on which future predictions can be based.
2. Estimating future business: Against the backdrop of the information collected, an estimate
of future prospects of business is made by management. The trends are projected by
management after a step-by-step procedure where the information is put to close scrutiny
and analysis. These probable trends should not be taken as absolute guides to executive
action, they can be taken as intelligent guesses at this stage.

3. Comparing the actual with estimated results: To ward off dangers arising from wrong
anticipation, a periodic comparison of actuals with estimated results is made at this stage.
The forecast provides the measurement apparatus and helps in tracking down reasons for
major differences resulting in unanticipated gains/losses.
4. Refining the forecast process: The above three-step process helps executives in gaining
proficiency in constructing dependable forecasts. As time progresses they are able to
refine, sharpen and adjust the forecasting techniques to meet the changing needs of business.

4.1.2 Determinants of Business Forecasts

1. Political stability;
2. Population trends;
3. Price levels;
4. Government controls and fiscal policy;
5. Employment, productivity and national income;

6. Technical environment – some areas have shown great changes, e.g. computers, and the
impact of the speed of developments must be especially noted.

4.1.3 Benefits of Forecasting

The following may be said to be the advantages of business forecasting:

1. Since forecasts are the premises or basic assumptions upon which the manager's planning
and decision-making are based, business forecasting supplies vital facts and pertinent
information for successful planning.
2. It helps in bringing a singleness of purpose to planning, that cannot exist easily otherwise.
3. It improves the quality of managerial planning.

Example: If a company is able to anticipate the future requirements of customers, it can
plan and develop new products in an appropriate way.

4. Forecasting helps in achieving better coordination by focussing attention on the future. It
helps in ensuring a singleness of purpose to planning and objectives.

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