PLANNING FORECASTING AND DECISION MAKING

MEANING:
Forecasting, according to Fayol, includes both assessing the future and making provision for it. It is a technique of anticipating future problems and events. Forecasting involves making a detailed analysis of the past and present to get an idea about probable events in the future.

PURPOSE:
Forecasting helps a businessman in a number of ways. a) Makes Planning Possible: Short and long range planning within the enterprise requires estimation of prospective changes in economic conditions and in the general environment in which the business operates. . (Forecasting is the very basis of planning and without it, planning is an impossibility. It awakens the management against business cycles, minimises risks and reveals managements weaknesses if any, to face the future) b) Ensures Coordination: In the words of Henry Fayol, The act of forecasting is a great benefit to all who take part in the process and is the best means of ensuring adaptability to changing circumstances. The collaboration of all concerned leads to a unified front, an understanding of the reasons and a broadened outlook. (As forecasting involves a joint effort of all departments in the concern, it creates team spirit, unity and coordination in the efforts of subordinates. By focussing attention on the future, it assists in bringing a singleness of purpose of planning.) c) Facilitates Control: The key executives, by mutually developing the forecast, automatically assume co-responsibility and individual responsibility for such later deviation of the actual from the estimated result as may occur. (Forecasting helps in exercising control. A good forecast becomes the basis for a good budget-a widely used device for managerial control. Thus, for example, forecasts about the receipt and disbursement of cash are translated into a cash budget; forecast about manpower are translated into manpower budget; forecasts about sales budget, and so on.)

TECHNIQUES OF FORECASTING:
I. Quantitative II. Qualitative

Quantitative:
1. Survey Method- Field survey can be conducted to collect information regarding the attitude of people.

2. Business Barometers- Index numbers are used to measure the state of condition of business between two or more periods. Business trend, seasonal fluctuations of a business and cyclical movements are studied with the help of index numbers. 3. Time series Analysis: In time series analysis, the future is forecast on the assumption that past activities are good indicators of future activities. This method is quite accurate where future is expected to be similar to the past. 4. Econometric Models: This method is also called casual models. The complex relationship of various variables is responsible for the future behaviour of one variable. This forecasting technique is applied in projecting Gross National Product.

Qualitative:
Qualitative forecasting techniques are generally more subjective than their quantitative counterparts. Qualitative techniques are more useful in the earlier stages of the product life cycle, when less past data exists for use in quantitative methods. Qualitative methods include: 1. Delphi technique, 2. Nominal Group Technique (NGT), 3. Sales force opinions, 4. Executive opinions 5. Market research. Delphi Technique The Delphi technique uses a panel of experts to produce a forecast. Each expert is asked to provide a forecast specific to the need at hand. After the initial forecasts are made, each expert reads what every other expert wrote and is, of course, influenced by their views. A subsequent forecast is then made by each expert. Each expert then reads again what every other expert wrote and is again influenced by the perceptions of the others. This process repeats itself until each expert nears agreement on the needed scenario or numbers. Nominal Group Technique (NGT) Nominal Group Technique is similar to the Delphi technique in that it utilizes a group of participants, usually experts. After the participants respond to forecast-related questions, they rank their responses in order of perceived relative importance. Then the rankings are collected and aggregated. Eventually, the group should reach a consensus regarding the priorities of the ranked issues. Sales force opinions

The sales staff is often a good source of information regarding future demand. The sales manager may ask for input from each sales-person and aggregate their responses into a sales force composite forecast. Caution should be exercised when using this technique as the members of the sales force may not be able to distinguish between what customers say and what they actually do. Also, if the forecasts will be used to establish sales quotas, the sales force may be tempted to provide lower estimates.

Executive opinions Sometimes upper-levels managers meet and develop forecasts based on their knowledge of their areas of responsibility. This is sometimes referred to as a jury of executive opinion. Market Research In market research, consumer surveys are used to establish potential demand. Such marketing research usually involves constructing a questionnaire that solicits personal, demographic, economic, and marketing information. On occasion, market researchers collect such information in person at retail outlets and malls, where the consumer can experiencetaste, feel, smell, and see a particular product. The researcher must be careful that the sample of people surveyed is representative of the desired consumer target.

Decision Making Meaning:

Decision making can be regarded as the mental process (cognitive process) resulting in the selection of a course of action among various alternative scenarios. Every decision making process produces a final choice. The output can be an action or an opinion of choice.

Steps in Decision Making:

1. Recognizing the problems: When there is a deviation from past experience-e.g.-employees turnover has grown, defective products are suddenly coming off the assembly line, current years sales have fallen way below last years, etc. When there is a deviation from the plan-e.g. -profit levels lower than anticipated, a department is exceeding the budget, a project is called off. When other people bring problems to the manager- e.g.- workers may complain about poor working conditions, customers may complain about late deliveries.

When competitors outperform the managers organization- e.g.- other companies might develop new processes or improvements in operating procedures.

2. Deciding priorities among problems: All problems do not require the managers personal attention. E.g.- there are problems that might relate more closely to the lower level employees, problems that effect more than one department or requiring information available with top management may be passed on to the higher management levels. There may also be problems that can be procrastinated till they get solved without any effort and there are some which might not be practical to solve at a particular moment.

3. Diagnose the problem: Every problem should be diagnosed properly. A manager should remember that the symptoms of a problem that he observes may sometimes mislead him. To avoid this, managers can follow the systems approach in diagnosing a problem. A manager must do a thorough study of all the sub parts in the organization connected with the sub part in which the problem seems to be located.

4.

Developing Alternative Solutions Or Courses of Action: Every problem has usually has alternate solutions. Managers must study and list the most feasible alternatives on the basis of similar alternatives used by other /the concerned company in the past and also the limiting factors in the current situations. Managers might also use their own creativity by using the creative process of 5 stages- saturation, deliberation, incubation, illumination and accommodation. This also promotes initiative. Brain storming is another way of developing alternatives.

5. Measuring and Comparing the Consequences of Alternative Solutions: This involves a comparison of the quality and acceptability of various solutions. Tangible and intangible consequences should be taken into account. One must use his judgement and intuition to solve the problem.

Pilot testing small scale experimentation where enough information is not given. The external environment should also be considered.

6. Converting the decision into effective action and follow up of action: This requires communication of decisions to employees in clear and ambiguous terms. Efforts should be made to secure employees acceptance. As a safe guard against incorrect decisions that a manager might take, the manager, while converting this decision into action, should institute a system of follow- up so that he can modify or alter his decision at the earliest opportunity.

Delegation Meaning:
In the words of LOUIS .A.ALLEN, If a manager requires his subordinates to perform the work, he must entrust him with part of the rights and powers which he otherwise would have to exercise himself to get that work done.

Principles of Delegation
1. Principle of result expected- suggests that every manager before delegating the powers to the subordinate should be able to clearly define the goals as well as results expected from them. (The goals and targets should be completely and clearly defined and the standards of performance should also be notified clearly. For example, a marketing manager explains the salesmen regarding the units of sale to take place in a particular day, say ten units a day have to be the target sales. While a marketing manager provides these guidelines of sales, mentioning the target sales is very important so that the salesman can perform his duty efficiently with a clear set of mind.) 2. Principle of Parity of Authority and Responsibility- According to this principle, the manager should keep a balance between authority and responsibility. Both of them should go hand in hand. (According to this principle, if a subordinate is given a responsibility to perform a task, then at the same time he should be given enough independence and power to carry out that task effectively. This principle also does not provide excessive authority to the subordinate which at times can be misused by him. The authority should be given in such a way which matches the task given to him. Therefore, there should be no degree of disparity between the two.)

3. Principle of absolute responsibility- This says that the authority can be delegated but responsibility cannot be delegated by managers to his subordinates which means responsibility is fixed.(The manager at every level, no matter what is his authority, is always responsible to his superior for carrying out his task by delegating the powers. It does not means that he can escape from his responsibility. He will always remain responsible till the completion of task. Every superior is responsible for the acts of their subordinates and are accountable to their superior therefore the superiors cannot pass the blame to the subordinates even if he has delegated certain powers to subordinates example if the production manager has been given a work and the machine breaks down. If repairmen are not able to get repair work done, production manager will be responsible to CEO if their production is not completed.) 4. Principle of Authority level- This principle suggests that a manager should exercise his authority within the framework given. (The manager should be forced to consult their superiors with those matters of which the authority is not given that means before a manager takes any important decision, he should make sure that he has the authority to do that on the other hand, subordinate should also not frequently go with regards to their complaints as well as suggestions to their superior if they are not asked to do.) This principle emphasizes on the degree of authority and the level up to which it has to be maintained.

MBO
Management by Objectives (MBO) was first outlined by Peter Drucker in 1954 in his book The Practice of Management.

Meaning:
Management by Objectives (MBO) is a systematic and organised approach that allows management to focus on achievable goals and to attain the best possible results from available resources. It includes on-going tracking and feedback in the process to reach objectives. According to Drucker, managers should avoid the activity trap getting so involved in their activities that they forget their main objective. Instead of just a few top managers, all managers should: 1. Participate in strategic planning process, in order to improve the implementability of the plan 2. Implement a range of performance systems, designed to help the organization stay on the right track.

3. Focus on the result, not the activity. Management by Objectives is appropriate for: a) Knowledge based enterprises (when your staff is competent) b) Self-leadership skills (wish to include leadership skills in employees mgt) c) Creativity d) Initiative

Process of MBO:
Management by objectives is a process that ideally begins at the top of the organization with the establishment of specific organizational objectives. Then, at the second level of the organization, managers working with their bosses, establish objectives for their departments that are consistent with the organizations objectives. The procedure is repeated to the lowest level managers in the organization. The basic ingredient in the MBO process is a meeting between an individual manager and his boss, at the start of the appraisal period, during which the objectives are set. They decide: 1. 2. 3. The task to be accomplished by the manager. The period of time that will be allowed; and The basis on which progress will be judged.

When the established time period is up, they meet again. In the second meeting they review accomplishments and set future objectives, thereby starting the process all over again.

Advantages:
1. It requires each manager to actively involve himself in setting of objectives of his area to be accomplished during a specific time- period. Since managers are involved in setting their objectives, managers are generally more committed to the goals established and will generally work harder to accomplish them. 2. It requires that the goals of each department are consistent with the overall goals of the organization. This requirement ensures that the people and the departments do not work at cross purposes. 3. It encourages a more systematic evaluation of performance. Performance is evaluated on the basis of degree of accomplishment of specific goals. This is generally better than evaluating performance on the basis of personal characteristics.

Disadvantages:
1. Sometimes it is not feasible to state objectives for a time period. 2. MBO presumes a certain level of trust throughout the hierarchy. But the organization life teaches people to be cautious. This inhibits honest dialog. 3. The system can become so formalized that it can become an end in itself. If carried to extremes it may not give managers enough time to complete their normal work due to excess meetings and paperwork. 4. MBO deals with an individuals performance on the present job only. It overlooks his past and also does not identify future potentials.