Forecasting Meaning: “Forecasting is the systematic attempt to probe the future, so as to recognize problems and opportunities and turn the into plans of action” Characteristics It is the tools of Planning It is concern with future Its prepared on the base of Mathematical and statistical tools Forecasting based on Past events and experiences

Forecasting Importance Key to Planning Forecasting for new business establishment Exactness in managerial decisions Coordination and Control Success in Organization For financial requirements Useful for other activities Limitation Its based on certain assumption Its not perfectly correct, its indicate the trend of future Forecasting is not accurately (Because of Dynamism) Its Costly and time consuming

Forecasting Techniques of Forecasting Survey Method Opinion poll method Time series analysis Extrapolation method Regression analysis method Input-output analysis Business barometers method Historical analogy method Econometric models

Decision Making Meaning “Decision making is a choice from available alternatives” Characteristics Goal oriented Its Concern with Alternatives Pervasive function Continuous activity Managerial function Important elements of planning Intellectual process Its may be positive or negative

Decision Making Importance Its all Pervasive It’s a key of managerial function Its essential for solving the problem Its necessary for the successful achievement of business objectives Types of Decisions Basic and routine Decision Personal and organizational Decision Policy and operative Decision Tactical and strategic Decision Individual and Group Decision Programmed and non-Programmed Decision

Decision Making Process Defining and Clarifying the Problem Collecting and Analyzing data Analyzing Problem Determining Alternative Solution Evaluating Alternatives Selection of Best Alternatives Implementing and Assessment of Decision

Decision Making Techniques 1. Intuition 2. Facts A. Traditional or Non-quantitative Technique 1. Intuition 2. Facts 3. Experience 4. Considered Opinion B. Modern or Quantitative Technique 1. Linear Programming 2. Transportation method 3. Simplex Method 4. Probability Theory 5. Game theory 6. Waiting line theory 7. Model 8. PERT and CPM 9. Decision Tree

Decision Making DECISION TREE Meaning: “Decision tree is one of the quantitative methods of decision making” or “Decision tree is a method used to choose best or most profitable of the available alternatives” Characteristics It is a Graphical Presentation It is a Quantitative method The choice is made after a careful consideration of the result and after a systematic comparison of the alternatives as well Final result presented in monetary term Several alternative emerge out of a main business decision

Decision making Example of Decision Tree: Sales Raise Raising of Sales Change in Product Change in Packaging Improve in Quality Appointing Salesmen Develop New Market Channel Conduct market Research

Decision Making Practical Of Decision Tree Alternative Events(Raise in Sales) Events(Decline in Sales) Additional Machines 1000000 800000 Overtime 1200000 Probabilities 0.6 0.4 Possible Alternatives Possible Events Revenue net Cash flow Rs. 600000 :: (1000000*0.6) Rs.920000 Additional Rs. 320000 :: (800000*0.4) Machines Overtime Rs. 720000 :: (1200000*0.6) Rs.1120000 Rs. 400000 :: (1000000*0.4)

Decision Making Meaning of PERT: “The techniques used for the purpose of planning and control of projects like Building a bridge & Preparing a Missile are known as PERT & CPM” Full form of PERT is Program Evaluation and Review Technique PERT was developed in 1958 by the US Navy. Characteristics of PERT: Planning and Control Division into Activities Event Mutually Related Expected Time Presentation by Chart Critical Path

Decision Making Advantage of PERT Planning Control Utilization of resources Estimated time Balance Time saving Flexibility Manpower planning Limitation of PERT Difficulty in estimating Repetitive activities Cost control Complications Estimates Support of top management

Decision Making Example: Description Time Minutes 1 Start work 2 Activity Description Time Minutes 1 Start work 2 Receiving Materials For A 10 3 Receiving Materials for B 20 4 Processing A on Lathe Machine 30 5 Processing B on Lathe machine 6 Polishing B 40 7 Assembling A & B 8 Finish work Total Minutes 1 10 M 20 M 2 3 20 M 30 M 5 40 M 20 M 4 6 7 0 M 8

Decision Making CPM: The purpose of CPM is to determine the estimated time of each of the activity and on that basis to determine the minimum time to complete a project. CPM was developed by Walker and Kelly. CPM was developed in 1957. Difference between PERT and CPM PERT CPM PERT was developed in 1958 CPM was developed in 1957 Its more use in R & D Projects Its more use Construction Projects The point at which each activity is completed is called Event The point at which each activity is completed is called Nodes

Activity Description Time A To requisition Part A 1 B To put it on lathe 4 C To get it colored 3 D To assemble it 2 E To requisition Part B F To Put it on shaper 7 G To get it Polished 5 H 3 Hour 3 5 1 Hour 3 Hour B A C 2 Hours 1 6 7 E D G 1 Hour F 5 Hour 2 4 7 Hour