Chapter 3

Environmental
Analysis And Froecasting

Political environment

Security risk
Political risk stability
Government effectiveness risk
Legal and regulatory risk
Macroeconomic risk

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Business Environment
Francis Cherunilam

Chapter 3
Environmental
Analysis And Froecasting

Stages of Environmental Analysis

1.
2.
3.
4.

The process of environmental analysis may be divided into

the following four stages:1
Scanning the environment to detect warning signals.
Monitoring specific environmental trends.
Forecasting the direction of future environmental changes.
Assessing current and future environmental changes for
their organizational implications.

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Business Environment
Francis Cherunilam

Chapter 3
Environmental
Analysis And Froecasting

Scanning : Scanning is the process of

anaylzing the environment for the
identification of the factors which impact
on or have implication for the business.
It may include the factors which have
appeared suddenly or evolved over
time.

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Business Environment
Francis Cherunilam

Chapter 3
Environmental
Analysis And Froecasting

Monitoring : It entails perspective followup and more in-depth anaylsis of the

environmental trends identified at the
scanning stage.The effort here is much
more focused and systematic then in
scanning.

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Business Environment
Francis Cherunilam

Forecasting:

Chapter 3
Environmental
Analysis And Froecasting

It is the anticipation of the future. What

are the future opportunities & threats
that can be known in advance so that
corrective action can be taken early.

Himalaya Publishing House

Business Environment
Francis Cherunilam

Chapter 3
Environmental
Analysis And Froecasting

Approaches To Environmental
Analysis

There are broadly two approaches to environmental analysis:

1. Outside-in (macro) approach
2. Inside-out (micro) approach
The outside-in or macro approach takes a very broad view of the
business environment (hence the term macro approach) with a
long term perspective and develops alternative scenarios of the
future. The implications of the alternative scenarios for the
industry and the organization are drawn up with reference to the
different scenarios.
The inside-out (micro) approach, which takes a rather narrow view
of the environment, forecasts the immediate future environment
on the basis of the ongoing environmental monitoring and derives
the implications of it for the industry and firm out of it.

Himalaya Publishing House

Business Environment
Francis Cherunilam

Chapter 3
Environmental
Analysis And Froecasting

Techniques For Environmental

Analysis

Verbal and Written Information/expert opinion

Search and Scanning/checklist
Ranking system
Forecasting/economic methods

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Business Environment
Francis Cherunilam

Chapter 3
Environmental
Analysis And Froecasting

Steps in Environmental Forecasting :

1.Identification of relevant environmental
varialbles
2.Collection of Information.
3.Selection of Forecasting technique: It
depends upon the amount and accuracy
of available information, cost and
expertise available.
Himalaya Publishing House

Business Environment
Francis Cherunilam

Techniques of Env. Forecasting

:

Chapter 3
Environmental
Analysis And Froecasting

1. Econometric Technique: Regression, Correlation,

2. Trend Extrapolation: Linear or non-linear.
3. Scenario DevelopmentSteps involved:
1. Identify the relevant strategic issues. Prioritize them
2 .Prepare the preliminary description of the issues in the
light of economic, social, political scenarios..
3. Implication on the Organization Performance.
4.Develop a scenario worst,best,most likely.
5.Discuss with top management & refine it.
6. Develop the contigency plan for each scenario.Business Environment
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Francis Cherunilam

Chapter 3
Environmental
Analysis And Froecasting

Epitome of Environmental Forecasting

IMF,World
bank,WTO,

Himalaya Publishing House

Business Environment
Francis Cherunilam