Environment Forecasting

1.
Environmental Forecasting Methods:

Everyone can understand that the economic, technological, political
and social changes are a part of organizational life. Given that fact,
the obvious questions, how can these changes be forecast?
ADVERTISEMENTS:
To say the least, forecasting is a most difficult process.

Some forecasting rules are the following:
(a) It is very difficult to forecast, especially, the future.
(b) The moment you forecast you know you’re going to be wrong –
you just don’t know when and in which direction.
(c) If you’re right, never let them forget it.
ADVERTISEMENTS:
(d) Regardless of the possibility of error, to be successful,

organizations must forecast their future environment.
Forecasting methods and levels of sophistication vary greatly. The

methods employed may vary from educated guesses to computer
projections using sophisticated statistical analyses. Several factors
determine the most appropriate methods of forecasting, including
the nature of the desired forecast, the available expertise, and the
available financial resources.
All forecasting techniques can be classified as either qualitative or

quantitative. Qualitative techniques are based primarily on opinions
and judgments. Quantitative techniques are based primarily on the
analysis of data and the use of statistical techniques. Several
qualitative and quantitative techniques are available to business.
2. Qualitative Forecasting Techniques:

a. Sales Force Composite:
Under the sales force composite method, a forecast of sales is
determined by combining the sales predictions of experienced sales
people. Because sales people are in constant contact with
customers, they are often in a position to accurately forecast sales.
ADVERTISEMENTS:
Advantages of this method are the relatively low cost and simplicity.
The major disadvantage is that sales personnel are not always
unbiased, especially if their sales quotas are based on sales
forecasts.
b. Customer Evaluation:
This method is similar to the sales force composite except that it
goes to customers for estimates of what the customers expect to
buy. Individual customer estimates are then pooled to obtain a total
forecast.
This method works best when a small number of customers make

up a large percentage of total sales. Drawbacks are that the
customer may not be interested enough to do a good job and that
the method has no provisions for including new customers.
c. Executive Opinion:
With this method, several managers get together and devise a
forecast based on their pooled opinions. Advantages of this method
are simplicity and low cost. The major disadvantage is that the
forecast is not necessarily based on facts.
d. Delphi Technique:
ADVERTISEMENTS:
The Delphi technique is a method for developing a consensus of

expert opinion. Under this method, a panel of experts is chosen to
study a particular question. The panel members do not meet as a
group and may not even know each other’s identity. Panel members
are then asked (usually by mailed questionnaire) to give their
opinions about certain future events or forecasts.
After the first round of opinions has been collected, the coordinator
summarizes the opinions and sends this information to the panel
members. Based on this information, panel members rethink their
earlier responses and make a second forecast.
This same procedure continues until a consensus is reached or until

the responses do not change appreciably. The Delphi technique is
relatively inexpensive and moderately complex.
e. Anticipatory Surveys:
In this method, mailed questionnaires, telephone interviews, or
personal interviews are used to forecast customer intentions.
Anticipatory survey is a form of sampling, in that those surveyed are
intended to represent some larger population.
Potential drawbacks of this method are that stated intentions are

not necessarily carried out and that the sample surveyed does not
represent the population. This method is usually accompanied by
medium costs and not much complexity.
3. Quantitative Forecasting Techniques:

a. Time-Series Analysis:
This technique forecasts future demand based on what has
happened in the past. The basic idea of time-series analysis is to fit a
trend line to past data and then to extrapolate this trend line into
the future.
Sophisticated mathematical procedures are used to derive this trend

line and to identify and seasonal or cyclical fluctuations. Usually a
computer program is used to do the calculations required by a time-
series analysis.
One advantage of this technique is that it is based on something

other than opinion. This method works best when a significant
amount of historical data is available and when the environmental
forces are relatively stable. The disadvantage is that the future may
not be like the past.
b. Regression Modeling:
Regression modeling is a mathematical forecasting technique in
which an equation with one or more input variables is derived to
predict another variable. The variable being predicted is called the
dependent variable. The input variables used to predict the
dependent variable are called independent variables.
The general idea of regression modeling is not determine how

changes in the independent variables affect the dependent variable.
Once the mathematical relationship between the independent
variables and the dependent variable has been determined, future
values for the dependent variable can be forecast based on known or
predicted values of the independent variables.
The mathematical calculations required to derive the equation are

extremely complex and almost always require the use of a
computer-. Regression modeling is relatively complex and
expensive.
c. Econometric Modeling:
Econometric modeling is one of the most sophisticated methods of
forecasting. In general, econometric models attempt to
mathematically model an entire economy. Most econometric
models are based on numerous regression equations that attempt to
describe the relationships between the different sectors of the
economy.
Very few organizations are capable of developing their own

econometric models. Those organizations that do use econometric
models usually hire the services of consulting groups or company
that specialist in econometric modeling. This method is very
expensive and complex and is, therefore, primarily used only by
very large organizations.
4. Environmental Scanning:
We now turn to discuss the methods techniques employed by the
organizations to monitor their relevant environment and to gather
data to derive information about the opportunities and threats that
affect their business. The process by which organizations monitor
their relevant environment to identify opportunities and threats
affecting their business is known as environmental scanning.

Environment Forecasting

Uploaded by

Copyright:

Available Formats

Environment Forecasting

Uploaded by

Document Information

Original Description:

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Environment Forecasting

Uploaded by

Copyright:

Available Formats

1.

Environmental Forecasting Methods:

To say the least, forecasting is a most difficult process.

(c) If you’re right, never let them forget it.

(d) Regardless of the possibility of error, to be successful,

Forecasting methods and levels of sophistication vary greatly. The

All forecasting techniques can be classified as either qualitative or

2. Qualitative Forecasting Techniques:

This method works best when a small number of customers make

The Delphi technique is a method for developing a consensus of

This same procedure continues until a consensus is reached or until

Potential drawbacks of this method are that stated intentions are

3. Quantitative Forecasting Techniques:

Sophisticated mathematical procedures are used to derive this trend

One advantage of this technique is that it is based on something

The general idea of regression modeling is not determine how

The mathematical calculations required to derive the equation are

Very few organizations are capable of developing their own

You might also like