Page 78 - DCOM102_DMGT101_PRINCIPLES_AND_PRACTICES_OF_MANAGEMENT

Principles and Practices of Management

Notes 5. Forecasting helps in minimising the costly planning errors.
6. Effective forecasting helps in identifying the environmental forces and assists in providing
for these challenges, though in an imperfect way. Without business forecasting, individuals
as well as organisations are at the mercy of future events.
7. Forecasting also helps in preparing the organisation for future crisis and emergencies.
The organisation, through adequate planning measures, can buffer itself against many, if
not all, of these unexpected changes. It may be impossible to evolve necessary shock
absorbers completely guard against business cycles but at least their impact can be fairly
assessed, and the unfavourable consequences can be minimised.
8. It supplies vital information regarding the weak spots in the organisation thereby paving
the way to appropriate control. Once such areas are spotted, it is easy for managers to
establish checkposts for effective control and sound planning thereafter.

4.1.4 Limitations of Forecasting

Forecasts are only estimates of future conditions and not indicators of actual position. Future is
shrouded by shadows of uncertainty. It is quite possible that, because of uncertainty, the best
possible plan may result in losses and a bad plan in profits. Uncertainty always places severe
limitations on the efficacy of forecasting. Forecasting suffers from the following limitations:
1. Reliability of past data. Although past events are analyzed as a guide to the future, a
question is raised as to the accuracy of these recorded events.
2. Accurate judgment is needed to identify key factors entering the forecast, interpreting
data and selecting methods of analysis and applying them to problems.

3. Single figure forecasts may be unsatisfactory, as there is a need for probability to be
attached, thereby evaluating the likelihood of the event occurring.
4. A successful forecast is something of a miracle and often occurs for wrong reasons.
Prophesies of future events is hazardous and in the case of business undertakings operating
in highly volatile and turbulent environments, forecasting is meaningless.
5. Forecasting is based largely on predictions and assumptions. Guesswork, however perfectly
made, cannot eliminate the margin of error, the possibility of mistakes.

6. The forecasting techniques have not been fully developed as yet and there is no fool proof
method of predicting the future. Thus forecasting is more of an art than a science. Its
success largely depends on how skillfully it is put into practice, how effectively the
forecasting techniques have been made, etc.

4.1.5 Techniques of Forecasting

Many scholars have proposed a variety of ways to categorize forecasting methodologies. The
following classification is a modification of the classification developed by Gordon over two
decades ago:

1. Genius forecasting: This method is based on a combination of intuition, insight, and luck.
Psychics and crystal ball readers are the most extreme case of genius forecasting. Their
forecasts are based exclusively on intuition. Science fiction writers have sometimes
described new technologies with uncanny accuracy.
2. Trend extrapolation: These methods examine trends and cycles in historical data, and then
use mathematical techniques to extrapolate to the future. The assumption of all these

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