2.

7 FORECASTING THE FUTURE FOR NATIONS, INDUSTRIES,

ORGANIZATIONS AND THE WORKFPRCE FOR CHANGES, DEVELOPMENTS
AND OPPORTUNITIES

STRATEGIC FORECASTING
 Expecting future strategies for the business. This estimates is made considering
various factors like controllable and non-controllable and present and anticipated
market condition.
 Accurate forecasting is essential for a firm to enable it to produce the required
quantities at the right time and arrange well in advance for the various factors of
production like materials, money, men, management, machinery, etc.

FACTORS INVOLVED IN STRATEGIC FORECASTING

1. TIME FACTOR : Forecasting may be done for short-term or long-term. Short-term

forecasting is generally taken for one year while long-term forecasting covers a
period of 5year, 10year or 20year period.
2. LEVEL FACTOR: Strategic forecasting may be undertaken at three different
levels.
a. Macro level - it is concerned with business condition over the whole economy.
b. Industry level - Prepared by different industries.
c. Firm level - firm level forecasting is the most important from the managerial
view point.
3. GENERAL OR SPECIFIC PURPOSE FACTOR: The firm may find either general
or specific forecasting or both useful according to its requirement.
4. PRODUCT: Forecasting varies according to the type of product like new product
or existing product or well-established product
5. NATURE OF THE PRODUCT: Goods can be classified into (i) consumer goods
and (ii) product goods. Business for a product will be mainly dependent on nature
of the product. Forecasting methods for producer goods and consumer goods will
be different accordingly.
6. COMPETITION: While forecasting, market situation and product position in a
particular market should be analyzed.
7. CONSUMER BEHAVIOUR: What people think about the future, their own
personal prospect and about products and brands are vital factors for firms and
industries.
ADVANTAGES:

1. ANALYZING BUSINESS
 Business analysis is the first and foremost application of strategic forecasting.
Strategic forecasting will consider all factors influencing business for the
product, to estimate future business for the product.
2. ESTIMATION OF SUPPLY
 By making strategic forecasting of a business, one can understand the needs
of business. One can estimates the require raw materials, finished goods, etc.
by identifying the suppliers who can supply quality products at competitive
price.

3. CAPITAL OUTLAY
 Capital outlay is to ascertain the investment requirements for the organization.
Strategic forecasting includes the responsibility of determining capital
requirements for business.
4. MARKET CONDITIONS
 Forecasting will be useful to examine the market condition for pricing decision
5. PRICE OF A PRODUCT
 Cost-volume-profit analysis is an important tool to analyze cost to determine
target profit for the organization. The firm can be able to decide appropriate
price for the product on the basis of forecasting.
6. ADVERTISING POLICY
 Forecasting helps the management and it has to act as adviser to the
management. It can advise about advertising policy, as it is necessary for
product promotion.
7. MARKET SEGMENTATION
 The strategist can be an adviser to the marketing department. He can take
active part in decisions relating to marketing issues like market segmentation,
product mix, product line and determination of decisions like product addition,
deletion- can also be taken with the help of business estimator.
8. FEASIBILITY REPORT
 The reports of forecasting help in the preparation of feasibility reports.
Organizations can take important decision by studying these reports.
9. HELPING IN PROFIT POLICY MAKING
  The reports of forecasting help in making profit policies of the organization.
As stated earlier CVP analysis is a useful tool in determining profit policy.
10. PRODUCTION SCHEDULING
 Scheduling is fixation of time boundaries. Thus, production budgets and
time-frame for production will be determined on the basis of strategic
forecasting.
11. COST REDUCTION
 As the production is predetermined on the basis of strategic forecasting, there
will be control over the cost of production. Hence, wastage can be avoided.
12. INVENTORY CONTROL
 Inventory or stock of materials can also be planned according to Production
Planning and Control (PPC) methods. It helps in under- or over-inventory
levels.

USEFUL FORECASTING TECHNIQUES:

Various techniques are used to forecast future situations but they do not tell the
future, they merely state what can be, not what will be.

1. EXTRAPOLATION
 the most widely used form of forecasting, over 70% use this technique either
occasionally or frequently.
 Is the extension of present trends into the future.
 Predict future data by relying on historical data, such estimating the size of a
population o few years from now on the basis of current population size and
its rate of growth,
 The basic problem is that a historical trend is based on the series of the
patterns or relationships among so many different variables that a change in
any one can severely alter the direction of the future trend. As a rule of thumb,
the further back in the past you can find relevant data supporting the trends,
the more confidence you can have in the prediction.

2. BRAINSTORMING
 Is non-quantitative approach that requires simply the presence of people of
some knowledge of the situation to be predicted.
  The basic ground rule is to propose ideas without first mentally screening
them.
 No criticism is allowed and wild ideas are encouraged in brainstorming. Ideas
should build in the previous ideas until consensus is reached.
 Brainstorming is a good techniques to use with the operating managers who
have more faith in “ gut feel “ than in more quantitative number-crunching
techniques.

3. EXPERT OPINION
 Is a non-quantitative technique in which expert in a particular area attempts to
forecast likely development.
 This type of forecast is based on the ability of a knowledgeable person(s) to
construct probable future developments based on the interactions of the key
variables.

Delphi Technique
 One application develop by the RAND Corporation during 1950-1960s by
Olaf Helmer, Norman Dalkey and Nicholas Rescher. In which separated
experts independently assess probability of the specific events.
 These assessment is combined and sent back to the expert for
fine-tuning until agreement is reached. These assessment is most useful
if they are shaped in several possible scenarios that allow decision
makers to more fully understand their implications.

4. STATISTICAL MODELING
 Is a quantitative technique that attempts to discover casual or at least
explanatory factors that link two or more time series together. Examples of
statistical modeling are regression analysis and and other econometric
method.

5. PREDICTION MARKET
 Is a recent forecasting technique enabled by easy access to the internet.
Prediction Markets are small-scale electronic markets, frequently open to any
employee, that tie payoffs to measurable future events, such as sales data for
a computer workstation, the number of bugs in an application, or a product
usage pattern.
6. SCENARIO WRITING
 Often called Scenario planning. Is the most widely used forecasting technique
after extrapolation.
 Originated by Royal Dutch Shell, scenarios are focused descriptions of
different likely futures presented in a narrative fashion. This technique has
been successfully used by 3M, Levi-Strauss, General Electric, United
Distillers, Electrolux, British Airways and Pacific Gas and Electricity, among
others.

7. Other forecasting techniques, such as Gross Impact Analysis (CIA) and Trend
Impact Analysis (TIA) have not established themselves successfully as regularly
employed tools.