This session and the one follows shall introduce the
planning tools and techniques that managers have at
their disposal to assist them in performing the management functions.
Management Science or Operation
Research is a management perspective aimed at increased decision
effectiveness by use of sophisticated
mathematical models and statistical methods.
1. TECHNIQUES FOR ASSESSING THE ENVIRONMENT
Several techniques have been developed to
assist managers in assessing the organization’s environment.
Environmental scanning is the screening of
large amounts of information to anticipate and interpret
changes in the environment. It’s used by both large and small
organizations, and research has shown that
companies with advanced environmental scanning systems increased their
profits and revenue growth.
is an analysis of an organization’s strengths,
weaknesses, opportunities, and threats. It
brings together the internal and external environmental analyses in
order to identify a strategic niche the
organization might exploit.
is an environmental scanning activity that
seeks to identify who competitors are,
what they are doing, and how their actions will affect the organization.
Another type of environmental scanning is global scanning in which
managers assess the changes and
trends in the global environment.
Environmental scanning provides the foundation for developing
which are predictions
1. There are three categories of forecasting techniques.
a. Quantitative forecasting
applies a set of mathematical rules to a
series of past data to predict
b. Qualitative forecasting
uses the judgment and opinions of knowledgeable
individuals to predict
c. Judgmental forecasting Forecasting
Forecasting is the process of predicting
changing conditions and future events that may significantly affect
the business of an organization.
1. Forecasting is important to both planning and decision making.
2. Forecasting is used in a variety of areas such as: production
strategic planning, sales analysis, inventory control, marketing
planning, and purchasing among others.
It’s important to look at forecasting effectiveness. Forecasting
techniques are most accurate when the
environment is not rapidly changing.
Some suggestions for improving forecasting effectiveness are as follows:
1) Use simple forecasting techniques.
2) Compare every forecast with “no change.”
3) Don’t rely on a single forecasting method.
4) Don’t assume that you can accurately identify turning points in a
5) Shorten the length of the forecasts.
6) Forecasting is a managerial skill and can be practiced and improved.
Methods of Forecasting
Quantitative forecasting relies on
numerical data and mathematical model to predict
future conditions. There are two types of quantitative forecasting most
1. Time-series methods
used historical data to develop forecasts of the
a. The underlying assumption is that patterns exist and that the future
resemble the past.
b. Time-series methods do not in themselves predict the impact of
or future actions that managers might take to bring about change.
c. A trend reflects a long-range general movement is either an upward or
d. A seasonal pattern indicates upward or downward changes that coincide
with particular points within a given year.
e. A cyclical pattern involves changes at particular points in time that
longer than a year.
f. Time-series are more valuable for predicting broad environmental
than in predicting the impact of present or future actions.
g. Because time-series rely on past trends there can be a danger in
their use if
environmental changes are disregarded.
or causal models
attempt to identify the major variables
related to or have caused particular past conditions and then use
of those variables (predictors) to predict future conditions.
a. Explanatory models allow managers to
assess the probable impact of
changes in the predictors.
b. Regression models are equations that
express the fluctuations in the
variable being forecasted in terms of fluctuations among one or more
c. Econometric models are systems of
simultaneous multiple regression
equations involving several predictor variables used to identify and
relationships or interrelationships that exist in the economy.
d. Leading indicators are variables
that tend to be correlate with the
phenomenon of major interest but also tend to occur in advance of the
Forecasting is aimed primarily at
trends in technology and other important aspects of the environment
The focus is upon longer-term issues that are less amenable to numerical
analysis as quantitative
The Delphi method and Scenario
analysis can be used as techniques.
Judgmental Forecasting relies mainly on
individual judgments or committee agreements
regarding future conditions.
1. Judgmental forecasting methods are highly susceptible to bias.
2. The jury of executive opinion
is one of the two judgmental forecasting
is a means of forecasting in which organization executives hold a
estimate, as a group, a forecast for a particular item.
3. The Sales-force composite
is a means of forecasting that is used mainly
predict future sales and typically involves obtaining the views of
salespeople, sales managers, and/or distributors regarding the sales
The choice of which forecasting method to use
depends upon the needs within particular forecasting
1. Quantitative forecasting
a. have a short-to-medium time horizon
b. require a short period of time if a method is developed
c. often have high development costs
d. are high in accuracy in identifying patterns
e. are low in accuracy in predicting turning points for time series, but
medium for other methods.
f. Are difficult to understand
2. Technological forecasting
a. have a medium-to-long time horizon
b. require a medium-to-long time
c. have medium development costs
d. are of medium accuracy in identifying patterns
e. are of medium accuracy in predicting turning points
f. are easily understood.
a. have a short-to-long time horizon
b. require a short time
c. have low development costs
d. are of medium-to-high accuracy in identifying patterns
e. are of low accuracy in predicting turning points
f. are easily understood
Benchmarking is the search for the best practices among
competitors or non-competitors that lead to
their superior performance.
. The benchmarking process typically follows four steps.
a. A benchmarking planning team is formed. The team’s initial task is to
identify what is to be
benchmarked, identify comparative organizations, and determine data
b. The team collects internal and external data.
c. The data is analyzed to identify performance gaps and to determine
the cause of the difference.
d. An action plan is prepared and implemented.