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Chapter  8 : Forecastingand Decision-making

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Introduction to Forecasting

and Decision-making

Planning involves forecasting and decision-making.

Forecasting is concerned with estimating the future events (or

making assumptions). It is inevitable while planning.

Decision-making is a choice of an appropriate alternative

from many alternatives.

Business groups and their managers are known by their

decision-making skills.

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Definition of Forecasting

Forecasting is a process of predicting (estimating orprojecting) the future happening of events relevant to

business operations by analysing the present and the

past data.

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 Forecasting Process

Steps:

1. Recognising the Need for Forecasting

2. Systematic Investigation and Collection of Information

3. Forecasting the Events4. Reviewing and Regulating Forecasting

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Difference between

Forecasting Process

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No. Planning Forecasting

1. Planning is an act of taking advance decisions

about objective, task, person, etc.

Forecasting is an act of getting the future

estimates on the basis of analysis data.

2. Planning involves forecasting and decision-

making. It is wider term.

It is just a part of planning. It is relatively a

narrow term. It is a planning tool.

3. A large number of people are influenced byplanning.

It has a limited direct influence.

4. It involves making advance decisions on

several areas.

It involves only estimating the future

occurrence of events.

5. It is outcome of forecasting. Forecasting is an

input to planning.

It is a base for planning; planning is

prepared as per the future estimates.6. It is the task of top level management. It is the task of middle level management.

7. It involves only company’s top executives. It may involve outside experts.

8. It contains commitment of action. It doesn’t contain any commitment.

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 Importance of Forecasting

1. Promoting the Organisation

2. Base for Planning3. Tool for Coordination and Control

4. Reduced Risk

5. Improved Performance

Forecasting is useful, but it also suffers from

certain limitations

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Decision-making

Planning involves forecasting and decision-making. A planner

has to decide on various aspects, like what to do, how to do,

when to do, and so forth.

Planning involves a number of decisions, whereas decision-

making is related to individual decision.

Definition: Decision-making is an act of selecting the suitable

solution to the problem from various available alternativesolutions to guide actions toward achievement of desired

objectives.

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Steps in Decision-making

Process

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1. Objective Specification

2. Problem Identification

3. Search for Alternatives

4. Evaluation of Alternatives

5. Choice of Alternative(s)

6. Action or Implementation of Decision

7. Measurement of Results and Review of Decisions

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Steps in Decision-making

Process

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1. Objective Specification

2. Problem Identification

3. Search for Alternatives

4. Evaluation of Alternatives

5. Choice of Alternative(s)

6. Action or Implementation of Decision

7. Measurement of Results and Review of Decisions

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Types of Decisions

On the basis of

criteria like,

strategic

consideration,time, scope,

repetition,

complexity, and

decision-maker,

different types ofdecisions can be

made.

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Types of

Decisions

Strategic and Operational Decisions

Minor and Major Decisions

Programmed and non-programmed Decisions

Simple and Complex Decisions

Long-term and Short-term Decisions

Individual and Group Decisions

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Types of Decision-making

Techniques

The techniques can be classified qualitative or quantitative

techniques

Quantitative Techniques:  A set of quantitativetechniques/tools used for decision-making in different areas is

popularly known as Operations Research (OR).

Mathematicians, statisticians, managers, management experts,

etc., have contributed to their development.

Qualitative Techniques: Qualitative methods for decision-

making are used when quantitative information is not available.

Most qualitative techniques are group-based techniques.

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 Decision-making Conditions

Decisions taken today are implemented in the future. Obviously,

the future (estimated) conditions are reflected in today’s 

decisions. The future exhibits different degree of certainty,

uncertainty and risk. There are three decision-makingconditions.

1. Conditions of Perfect Certainty

2. Conditions of Complete Uncertainty

3. Conditions of Risk (different degree of certainty/uncertainty

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  Decision-making

Approaches

The decision-making mechanism is affected by many factors,

such as personality of decision-maker, his initiative skills, the

present situation, human qualities, etc. Accordingly, decision-makers follow different approaches while making decisions.

1. The Rational Decision-making Approach

2. The Emotional Decision-making Approach

3. The Political Decision-making Approach

4. The Satisfying Decision-making Approach

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  Rationality in Decision-

making

Rational means purely logical, free from emotions, personal

values, perception, and attitudes.

When any decision is based on impersonal needs, the

decision may be said to be rational.

There are certain conditions to justify whether the decision is

rational.

But, practically, due to certain factors, decision-making tends

to have a limited scope to realise rationality. Most decisions

seem to both rationality and irrationality bound. 

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