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Forecasting & Decision Making

Forecasting is a tool used for predicting
future demand based on

past demand information.


Demand for products and services is usually uncertain. Forecasting can be used for

Strategic planning (long range planning) Finance and accounting (budgets and cost controls)

Marketing (future sales, new products)

Production and operations

What is forecasting all about?

Demand for Mercedes E Class

We try to predict the future by looking back at the past

Ja n

Fe Mar Apr Ma Jun Jul Aug b y


Predicted demand looking back six months

Actual demand (past sales)

Predicted demand

Two Phases of Decision Making

Decision Formulation Making

Identifying a problem or opportunity Acquiring information Developing desired performance expectations Diagnosing causes and relationships among factors affecting the problem

Generating alternatives Selecting the preferred solution Implementing the decided course of action Monitoring the situation to ensure successful implementation

Types of Decisions
Programmed Decisions A decision that is a fairly structured decision or recurs with some frequency or both.

Example: Starting your car in the morning.

Non-programmed Decisions

A decision that is relatively unstructured and occurs much less often a programmed decision.
Example: Choosing a vacation destination.

Decision Techniques

Quantitative Decisions

Qualitative Decisions
Marginal Analysis Cost Effective

Decision Making Steps

Recognize need for a decision
Frame the problem Generate & assess alternatives Choose among alternatives Implement chosen alternative Learn from feedback

Evaluating Alternatives
the possible course of action:
Legal? Ethical Economical? Practical?

Conditions Under Which Decisions are Made

Certainty Uncertainty

Objective probabilities


Subjective probabilities

Techniques for Decision Making

Six Thinking Hats

Thinking Hats" is a powerful technique that helps you look at important decisions from a number of different perspectives. It helps you make better decisions by pushing you to move outside your habitual ways of thinking

Decision Tree Analysis

Decision Trees are useful tools for helping you to choose between several courses of action
They provide a highly effective structure within which you can explore options, and investigate the possible outcomes of choosing those options

Delphi Technique
Round 1: Participants are chosen. Initial data is gathered. Round 2: A list of possible alternatives is compiled and distributed to participants. Round 3: An amended list of alternatives is distributed. Study Results : One collective policy is established.

Influences on Effective Decision Making

Decision Maker Characteristics Knowledge Ability Motivation

Problem Characteristics Unfamiliarity Ambiguity Complexity Instability

Decision Environment Characteristics Irreversibility Significance Accountability Time and monetary constraints

Making Better Decisions

Analyze the situation Scan the environment Think through the process Be creative Know the right timing Increase your knowledge Be flexible Cost effective