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The Importance of Forecasting

Accurate forecasting of changing elements in the environment is an essential part of strategic management. To aid in the search for future opportunities and constraints, Strategic Managers should take the following steps:

1. Select the environmental variables that are critical to the firm.

2. Select the sources of significant environmental information. 3. Evaluate forecasting techniques. 4. Integrate forecast results into the strategic management process. 5. Monitor the critical aspects of managing forecasts.

Select Critical Environmental Variables

Who select the key variables ?

1. In the context, environment refers to the general business setting created by the economic, technological, political, social, and ecological forces in which plans to operate. 2. The Chief Economist evaluates and forecast the state of the economy. 3. The Technological Assessment Specialist covers technology and science. 4. The Public Issue Consultant concentrates on politic and society

Select Critical Environmental Variables


What variables should be selected ?

1. All variables that will have a significant impact although their probability of occurrence is low, also include highly probable variables regardless of their impact. Delete other with little impact and low probabilities. 2. Disregard major disaster, such as nuclear war. 3. When possible aggregate variables into gross variables. 4. If the value of one variable is based on the value of another, separate the dependent variable for future planning.

See Figure 5 - 2 that identifies some issues that may have critical impacts on a firms future success.

Select Sources of Significant Environmental Information

Casual gathering of strategic information through

reading, interactions, and meetings.

The formal, deliberate, and structured searches are desirable although popular trade and scholarly journals are important sources of forecasting

If the firm can afford the time and expense, it should also gather primary data in such areas as market factors, technological changes, and competitive and supplier strategies.

Evaluate Forecasting Techniques

Debate exist over the accuracy quantities

versus qualitative approaches to forecasting. ( see Figure 5-3)

Techniques available:

Economic forecast: General economic condition, Disposable income, Consumer price index, wages rates, and productivity. Econometric Models: Time series model (trend analysis) and Judgmental opinion). model (sales force estimates & Juries of executives

Evaluate Forecasting Techniques

Social Forecast:
Population, Housing, Social security & Welfare, Health & Nutrition, Education & Training, Income, and Wealth & Expenditures. Political Forecast: The size of Government budget, Tariffs, Tax Rates, Defense spending, the growth of regulatory bodies, the extent of business leaders

participation in government planning.

Evaluate Forecasting Techniques


Technological Forecast:
Such rapidly developed and revolutionary technological innovations as lasers, nuclear energy, satellites, other

communications devices, desalination of

water, electric cars, and miracle drugs have prompted many firms to invest in technological forecast.

Integrate Forecast Results into the Strategic Management Process

Once the forecasting technique have been selected and the forecast made, the result must be integrated into the strategic management process.
For instance, the economic forecast must be related to analyses of the industry, suppliers, competition, and key resources. ( See Figure 5 - 5 )

Monitor the Critical Aspects of Managing Forecast

3 aspects are critical over the lifetime of a firm:

1. The identification of the environmental factors that deserve forecasting such as sales forecast and competitive trends. 2. The selection of reputable, cost efficient forecast sources outside the firm that can expand its forecasting database. 3. The selection of forecasting tasks that are to be done in-house. Begin with less technical methods such as sales force estimates.