This document provides an overview of forecasting and decision making. It defines forecasting as predicting future events based on past and present data to help managers make decisions. Various forecasting techniques are discussed, including qualitative methods like executive opinion and quantitative time series models. Decision making is defined as selecting an action from alternatives to achieve objectives. The document outlines characteristics, types, and advantages of decision making. It also discusses limitations of forecasting like costs and uncertainty.

1. MBA SEM-1
GROUP-4
GUIDED BY: PREPARED BY:
DR. JAY BADIYANI FENIL SHAH
DHARMESH SOLANKI
MEGHAVI JANI
SUBMITTED TO:
DEPARTMENT OF BUSINESS ADMINISTRATION
FACULTY OF MANAGEMENT
BHAVNAGAR

2.  Meaning
 Forecasting is a process of predicting or
estimating the future based on past and
present data. Forecasting provides information
about the potential future events and their
consequences for the organization. It may not
reduce the complications and uncertainty of
the future. However it increases the confidence
of the management to make important
decisions. Forecasting is the basis of premises.
Forecasting uses many techniques. Therefore,
it is also called as Statistical Analysis.

3.  DEFINITIONS:
 Neter and Wasserman state “Business forecasting
refers to the statistical analysis of the past and current
movement in the given time series so as to obtain clues
about the future pattern of those movements.”
 ‘‘It is the systematic attempt to assume future so that
the organization can be able to know the problems and
opportunities and turn them into plan of action.’’

4.  Features of forecasting
1. Forecasting is concerned with future events.
2. It shows the probability of happening of future
events.
3. It analyses past and present data.
4. It uses statistical tools and techniques.
5. It uses personal observations.

5.  Steps in forecasting
1. Analyzing and understanding the problem
2. Developing sound foundation
3. Data collection
4. Data reduction
5. Analyzing data
6. Estimating future events
7. Comparing results
8. Follow up action

6.  Importance of forecasting
1. Forecasting provides relevant and reliable
information about the past and present events
and likely the future events.
2. It gives confidence to the managers for
making important decisions.
3. It is the basis for making planning premises.
4. It keeps managers active and alert to face the
challenges of future events and the changes
in environment.

7.  Limitations of forecasting
1. The collection and analysis of data about the
past, present and future involves a lot of time
and money. Therefore, managers have to
balance the cost of forecasting with its
benefits. Many small firms don't do
forecasting because of the high cost.
2. Forecasting can only estimate the future
events. It cannot guarantee that these events
will take place in the future. Long-term
forecasts will be less accurate as compared to
short-term forecast.

8. 3. Forecasting is based on certain assumptions.
If these assumptions are wrong, the
forecasting will be wrong. Forecasting is
based on past events. However, history may
not repeat itself at all times.
4. Forecasting requires proper judgment and
skills on the part of managers. Forecasts may
go wrong due to bad judgment and skills on
the part of some of the managers. Therefore,
forecasts are subject to human error.

9.  Types of Forecasting
Organizations use three major types of
forecasts in planning future operations.
1. Economic forecasts:
It addresses the business cycle by
predicting inflation rates, money suppliers,
housing starts, and other planning Indicators.

10. 2. Technological forecasts:
These are concerned with rates of
technological progress, which can result in the
birth of exciting new products, requiring new
plants and equipments.
3. Demand forecasts:
These are projections of demand for a
company’s products or services. These are
forecasts, also called sales forecasts, drive a
company’s production, capacity, and
scheduling systems and serve as inputs to
financial, marketing, and personnel planning.

11. Methods of Forecasting
Methods of
Forecasting
Qualitative
Executive
Opinion
Market
survey
Sales force
composite
Delphi
Method
Quantitative
Time-Series
Models
Associative
Models

12. Qualitative Methods
Qualitative forecasting uses experience and
judgment to establish future behaviours.
1. Executive Opinion

13. 2. Market Survey

14. 3. Sales Force Composite

15. 4. Delphi Method

16. Quantitative Method
Quantitative forecasting uses historical data to
establish relationships and trends which can be projected
into the future.
1. Time series models
Assumes information needed to generate a forecast is
contained in a time series of data. It also assumes the future will
follow same patterns as the past.

17. 1) The Naive Model
The Naive Model is simple and flexible. It provides
a baseline to measure other models. It also attempts to
capture seasonal factors at the expense of ignoring
trend.
Demand in next period is same as demand in most
recent period. This method is usually not good.

18. 2) Moving Average Method
(a) The Simple Moving Average Method
In this method the forecast is the average of the last n
observations of the time series.
Simple Moving Average=Σ Demand in previous n periods
n
(b) Weighted Moving Average Method
In this method historical values of the time series
are assigned different weights when performing the
forecast.

19.  Advantages of Moving Average Method
◦ Easily understood
◦ Easily computed
◦ Provides stable forecasts
 Disadvantages of Moving Average Method
◦ Requires saving lots of past data points: at least the N
periods used in the moving average computation
◦ Lags behind a trend
◦ Ignores complex relationships in data

20. 4) Exponential Smoothing Method
 It is a moving average technique that requires a
minimum amount of past data.
Ft+1 = Ft + a(At - Ft)
 This method uses a smoothing constant α with a value
between 0 and 1 (usual range 0.1 to 0.3)
 A is high when more weightage is given to recent data and α is
low when weightage is given to recent data.
 This method is widely used in business and an important part
of computerized inventory control systems.

21.  Time series components
1. Trend
 Persistent, overall upward or downward pattern.
 Changes due to population, technology, age,
culture, etc.
 Typically several years duration.

22. 2. Seasonal
 Regular pattern of up and down fluctuations.
 Due to weather, customs, etc.
 Occurs within a single year.
3. Cyclical
 Repeating up and down movements.
 Affected by business cycle, political, and economic
factors.
 Multiple years duration.
 Often causal or associative relationships.

23. 0 5 10 15 20 25
4. Random
 Erratic, unsystematic, ‘residual’ fluctuations.
 Due to random variation
or unforeseen events.
 Short duration and
non-repeating.
A B C D E F

24. 2. Associative Models
This model Used when changes in one or more
independent variables can be used to predict the
changes in the dependent variable.
Such models usually consider several variables that are
related to the quantity being predicted. Once these related
variables have been found, a statistical model is build and
used to forecast the item of interest, e.g.; the sells of Dell
PCs may be related to the Dell’s advertising budget, the
company’s prices, competitor’s prices and promotional
strategies. In this case PCs sales would be called the
dependent variable and the other variables would be called
the independent variables.

25.  Meaning
 The English word ‘Decision’ originated from
the Latin word ‘Deciso’ which means “ to cut
from.”
 ‘To Decide’ means “To come to a conclusion”
or “To pass a resolution.”
 Decision making means to select a course of
action from two or more alternatives. It is done
to achieve a specific objective or to solve a
specific problem.

26. Definitions
 According to George R Terry, “Decision making is the
selection based on certain criteria from two or more
alternatives.”
According to Heinz Weihrich and Harold Koontz,
“Decision making is defined as the selection of course of
action among alternatives; it is the care of planning.”

27. Characteristics of Decision making
1. Decision making implies choice
2. Continuous activity/process
3. Mental/intellectual activity
4. Based on reliable information
5. Goal oriented process
6. Means and not the end
7. Relates to specific problem
8. Time consuming activity
9. Needs effective communication
10.Pervasive process
11.Responsible job

28. Advantages of Decision making
1. Decision making is the primary function of
management
2. Decision making facilitates the entire
management process
3. Decision making is the continuous managerial
function
4. Decision making is essential to face new
problems and challenges
5. Decision making is delicate and responsible
job

29.  Types of Decision Making
1. Programmed and non-programmed decision
 Programmed decisions are normally of repetitive nature
and are taken within the broad policy structure. This
decisions have short run impact and are taken by lower
level managers.
 Non-programmed decisions are of non-repetitive
nature. Their need arises because of some specific
circumstances. Such decisions are taken by top
management.

30. 2. Major and minor decisions
 Major decisions are which are taken for whole
organization.
 Minor decision means which decisions are taken for
minor decision making.
3. Routine and Strategic decisions
 Routine decisions or tactical decisions are taken in the
context of day to day operations of the organization.
Mostly they are of repetitive nature and do not require
much analysis and evaluation and can be made quickly.

31.  Strategic or basic decisions relate to policy matters and
usually involve large investment or expenditure of funds.
These decisions are mostly non-repetitive in nature. A
slight mistake in these decisions is bound to injure the
entire organization.
4. Policy and operative decisions
 Policy decisions are taken by top management and they
mostly relate to basic policies. Such decision have long
term impact.
 Operative decisions relate to the day-to-day operations
of the enterprise. They are generally taken by middle
and lower level management who are more closely
related with the supervision of actual operations.

32. 5. Organizational and personal decisions
 The executive makes organizational decision, when he
acts formally as a company officer. Such decisions
reflect the basic policy of the company.
 Personal decisions relate to the executive as an
individual and not as a member of an organization.
6. Individual and group decisions
 Individual decisions are taken by a single individual in
the context of routine or programmed decisions where
the analysis of variables is simple and for which broad
policies are already provided.

33.  Group decisions are already taken by a group or a
standing committee constituted for this specific
purpose. Such decisions are very important for the
organization because they involve the participation of a
large number of persons.

34. Process of decision making
Decision-making involves a number of steps which need to
be taken in a logical manner. This is treated as a rational or
scientific 'decision-making process' which is lengthy and time
consuming. Such lengthy process needs to be followed in order
to take rational/scientific/result oriented decisions. Decision-
making process prescribes some rules and guidelines as to how
a decision should be taken / made. This involves many steps
logically arranged. It was Peter Drucker who first strongly
advocated the scientific method of decision-making in his world
famous book 'The Practice of Management' published in 1955.
Drucker recommended the scientific method of decision-making
which, according to him, involves six steps:

36. Time and human relationship in Decision
making
 Time and human relationships are crucial elements in
the process of making decision. Decision making
connects the organization’s present circumstances to
actions that will take the organization into the future.
Decision making also draws on the past; past
experiences positive and negative play a big part in
determining which choices managers see as feasible or
desirable. Objectives of the future are thus based in
part of past experiences.

37.  In some cultures, human relationships take on even more
importance in deciding about business dealings than they do in the
United States. For example, the Chinese believe that even the most
comprehensive plan will always involve unforeseen problems. To
solve these one must rely on a network of relationships. Therefore,
the Chinese are more interested in a long standing and sincere
commitment to working together than in apparently perfect contracts
that appear to contain no loopholes. The Chinese believe that a
signed contract marks the end of the first stage in business dealings,
not a final agreement. With his or her signature, a signatory to any
contract automatically establishes himself or herself as a friend with
a responsibility to help maintain a win-win agreement if difficulties
arise. It is considered not only a business necessity but also a matter
of reputation and face.

38.  http://kalyan-city.blogspot.com/2011/08/what-is-
forecasting-meaning-features.html
 Forecasting methods and applications –Authors : Spyros
Makridakis, Steven C Wheelwright, Rob J Hyndman
 http://www.managementstudyguide.com/what-is-
decision-making.htm
 http://www.genesismc.co.uk/blog/drucker-effective-
decision/
 http://kalyan-city.blogspot.com/2010/06/decision-
making-process-in-management.html
 http://www.citeman.com/4584-time-and-human-
relationships-in-decision-making.html#ixzz3JJ4jnMFM
 Book of Management – James A.F.Stoner