CHAPTER TWO

THE PLANNING FUNCTION

2.1 Concepts and need for planning

What is planning?
All managers share in the execution of the management functions – planning, organizing, staffing, directing &
controlling. An organization can succeed in effective utilization of its resources when its management decides its
objectives & methods of achieving them.
Planning Terminology
Basic planning terminology from general to specific are:
Vision: is nonspecific, directional and motivational guidance for the entire organization. Top managers normally
provide a vision for the business.
Mission or purpose: is an organization's reason for being to exist. It is concerned with scope of the business and
what distinguishes this business from similar businesses. It defines the basic task of an organization. Mission
reflects the culture and values of top management.
Goals: refine the mission and address key issues within the organization such as market standing, innovation,
productivity, physical and financial resources, profitability, management and worker performance and efficiency.
They are expected to be general, observable, challenging, and untimed.
Objectives: are the ends towards which activity is aimed. They are specific statements of anticipated results that
further define the organization's goals. They are expected to be SMART (Specific, Measurable, Attainable,
Rewarding, and Timed).
Strategies are the means of achieving the aim of an enterprise. They are major plans that commit large amounts of
the organization's resources to proposed actions, designed to achieve its major objectives and goals.
 An organization's strategies define the business the firm is in, the criteria for entering the business, and the
basic actions the organization will follow in conducting its business (Higgins, Page 229.)
Tactics are the most specific and narrow plans, describe who, what, when, where and how activities will take
place to accomplish a goal.
Definition
Planning is an essential, critical and complex managerial function. It is the primary and the most fundamental
function of management. Nothing can be performed without planning. Planning doesn’t occur in vacuum. Each
manager has to plan. The plans of managers are influenced i.e. affect or affected by the plans of other managers.
i.e. there are vertical and horizontal influences.
Planning is the process of determining how the organization can get where it wants to go; outlining the activities
that are necessary to achieve organization’s goals.

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Planning involves determination of objectives/ goals; establishment of overall strategy; formulation of programs;
maps the courses of action for their attainment; development of schedules, timing of action & assignment of
responsibilities for their implementation.
Planning is a process of setting organizational objectives and choosing in advance the most suitable means for
achieving those objectives. Planning concerned with ends (what is to be done) and with means (how it is to be
done). Planning already determines what and how to do, what actions to be taken to accomplish predetermined
objectives, how long it will take and where it will take.
Planning is constructive reviewing of the future needs so that present situations can be adjusted in the view of the
established goal. (Gorge R. Terry).
In the business world, organizations should achieve their objectives. In order to achieve objectives, the
organizations should plan. Planning process produces the plan. Plan is a blueprint for action & prescribes
activities necessary for an organization to realize its goals.
Understanding of planning process requires knowing the relationship between goals, plans & controls as shown
below.

Goals Plans Controls

Goals represent the designed position of an organization that is sought to be achieved; Plans establish the means
for achieving the organization goals; and through planning managers outline the activities necessary to insure that
the goals of the organization are achieved; and Controls monitor the extent to which goals have been achieved
and ensure that the organization is moving in the direction suggested by its plans. Goals are the outcomes of
planning and benchmarks for controls. They are taken from the plan. Goals, plans & controls are inextricably
intertwined & must be well integrated so as to make the planning process successful.
Planning answers six basic questions in regard to any intended activity.
 The „what‟ or what to do - the goal that we want to achieve. It may be long term or short term.
 The „when‟ or when to do - is the question of timing. Each long term goal may have a series of short term
goals that must be achieved before the long term can be achieved.
 The „where‟ or where to do - the place at which the plan is put into practice.
 The „who‟ or who does it - the individual/ unit supposed to undertake specific tasks. It asks which specific
people will perform specific tasks.
 The „how‟ or how it is done or by whom it is done - the strategy/ method for achieving the goal. It describes
what specific steps are to be taken and in what kind of sequence.
 The „how much‟ or how much is required to do - concerns with the expenditure of resources that are
determined to be essential to reach goals.

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Planning is the process of preparing for change & the dynamics of the environment. Planning bridges the gap
from where we are, to where we want to go.
Need for planning
Why managers need to plan?
“Failing to plan is planning to fail”
Planning is important for every organization irrespective of its size, objectives, and location. Organizational tasks
can’t be performed without plans. Planning is critical managerial function that forms the basis for other
managerial functions. Without planning business decisions would become inconsistent, random & ad hoc choices,
and this may lead to failure of entire organization. i.e. “Failing to plan is planning to fail”
Planning is important for several reasons. It provides direction for an organization by specifying objectives; It
reduces risk and uncertainty for the future; It allows organizational members to concentrate on common
organizational objectives; It provides the criteria for decision making; It provides basis for control or facilitates
control; it helps organizations to succeed or reach their objectives; it promotes efficient utilization of resources; it
enables an organization to use opportunities and face challenges; and it contributes to the performance of other
managerial functions.
Planning is exercised for several reasons or advantages. Among them the most one are
1. To minimize risk & uncertainly.
2. For better coordination
3. To focus attention on organizational goals
4. To facilitate control
5. To promote foreword thinking
Minimizes risk & uncertainty
Planning process require information and provides for managers & organizations a more rational & fact-based
procedures for making decision. It allows managers not to suffer from risks of random & uninformed decisions.
Planning can't make managers to carry out their activities without risk. Risk is an inherent part of decisions that
operates in a dynamic environment.
Better co-ordination or lead to success
Planning provides a foundation for the co-ordination of broad range of organizational activities. A plan helps to
define the responsibilities of multiple work groups & to co-ordinate their activities. Without co-ordination
mechanisms, it would be difficult to direct the efforts of organizational members and groups towards the common
organizational goals.
Focuses attention on organizational goals
Planning helps managers to focus their attention on organization’s goals & activities. And it forces the whole
organization to embrace identical goals & elaborate in achieving them. Without plans each individual or group

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will function in its own interest; and activities performed in this way are not important one to achieve
organizational goals.
Planning promotes efficiency & effectiveness of the organizations performance; and also enables managers to
outline in advance an orderly sequence of steps for realization of organizational goals and avoid unnecessary
duplication & overlap of activities.
Facilitate control
In planning, managers set goals & develop plans to accomplish these goals. And these goals & plans then become
standards or benchmarks against which performance can be measured. The function of control is to ensure
activities confirm to the plan; and control can be exercised if there are plans. Controlling is possible when there is
a benchmark (plan or goal) against which actual performance is compared.
Promote forward thinking
Planning forces managers to think ahead; consider resource needs; potential opportunities to be exploited and
threats from which the organization is protected in the future. This enables organizations to prepare for better
performance in the future.
Where does planning start?
Organizations should plan. Planning is carried out at the various levels of the organization. There are two basic
approaches to planning, namely the top - down approach and the bottom - up approach.
1. The top - down approach
It is the planning efforts that begin at the top level managers. Top level managers determine the direction of the
organization and establish a master plan to achieve over all goals. The master plan provides direction within
which departments & work groups develop their plans.
2. The bottom - up approach
It is the planning that is initiated at the lowest level of the organizational hierarchy. In this approach, the managers
and employees at the operational level began the planning process, finally the top levels bring together all the
plans of the organizations work groups to develop a cohesive & well integrated master plan, then this establishes
the over all direction of the organization.
These planning modes/ approaches are not mutually exclusive. By being flexible, mangers can capitalize on the
benefits of both approaches. The current trend is towards integrating the aspects of both top down & bottom up
planning approaches.
Requirements of planning
All organizations want smooth transition from present to the future. Planning represents the way in which
decision makers attempt to build bridge into the future. For several reasons, planning is not given the attention
that it requires. But Planning requires time; knowledge, commitment; forecasts; thought and paper-work.

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2.2 Types of plans
Plans can be classified on different bases or dimensions. The most important ones are:
1. Repetitiveness (frequency of use)
2. Time dimension/ horizon (duration) &
3. Scope/ breadth dimension.
Classification of plan based on repetitiveness
Based on repetitiveness, plans are classified into two, as Standing plans and Single use plans.
1. Standing plans
Standing plans are plans that are used again & again; followed each time; and designed to deal with
organizational issues or problems that recur frequently. They can limit employees' flexibility & make it difficult
to respond to the needs of the customers. By using standing plans management handles repetitive problems.
Standing plans include mission or purpose; goals/ objectives, strategy; policy; procedure; method and rule.
 Purpose or mission
They are used interchangeably. Purpose or mission indicates the basic function or task of an enterprise. Every
organization to be meaningful should have a purpose/mission. E.g. the purpose of a university is teaching &
research.
 Goals or objectives:
Objectives or goals are the end points towards which all management functions aimed.
 Strategies:
Strategies are ways or means to achieve the established objectives. They are major courses of action that the
organization plans to take in order to achieve objectives. Every objective at least must have one strategy to
accomplish every objective.
 Policies:
Policies are general statements or understandings that guide or channel thinking and action in decision making.
They govern how certain organizational situations will be addressed. They provide guideline to managers who
must make decisions about circumstances that occurs frequently within the organization.
Policies exist at all levels of the organization ranging from major company policy to minor policies applicable to
the smallest segments of the organization.
Policies are guides to decision making, they must allow discretion or room for exercising power & be flexible to
handle situations. If there is no room for flexibility, the guideline is rule that tells the Dos & the don't Dos. The
degree of flexibility can be narrow or broad depending on the position and authority of the manager in the
organization. The narrower the room of flexibility, the lower is the authority, and the broader is the room for
flexibility, the higher is the position/authority in the organization.
 Procedures:

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Procedures outline chronological sequences of required actions/ activities. They are sequentially arranged rules or
actions that need to be done in orderly manner to complete recurring tasks.
Procedures are guides to action rather than to thinking and they detail the exact manner in which certain activities
must be accomplished.
Procedures found in every parts of the organization. Like plans, they exist in a hierarchy. They help the
implementation of policies. Procedures are more specific & action oriented than policies. They are designed to
give explicit instructions on how to complete a recurring task. e.g. the university handout book.
 Methods:
Methods are more detailed than procedures. Procedure shows a series of steps to be taken where as a method is
only concerned with a single operation, with one particular step, and tells exactly how this particular step is to be
performed.
 Rules:
Rules are the simplest and strictest type of standing plan found in organizations. They provide detail & specific
regulations for action, and reflect managerial decisions that certain actions must or must not be done. Rules are
different from policies & procedures. Rules also serve as guidelines, but allow no discretion in their application;
allow no deviation from the stated course of action. A procedure might be looked upon as of rules but a rule may
or may not be a part of procedure. e.g. “No smoking” is a rule unrelated to any procedure.
Rules are already decided measures that are applied in response to a certain action. And they are pre-decided
actions by top level managers. Employees don't have right to modify or change rules by themselves.
Rules, procedures & methods, by their nature, are designed to repress thinking; we should use them only when we
don’t want people in an organization to use their discretion.
2. Single – use plans
Single – use plans are developed to address a specific organizational situation.
They are used up only once but not over & over again as the standing plans. They are not used up again once the
objective is accomplished.
Single – use plans are commonly three types, namely programs; projects and budgets.
 Programs:
Programs are a relatively broad set of activities designed to accomplish a particular set of goals. They are
complex and encompass goals, policies, procedures, rules, task assignments, steps to be taken, resources to be
employed, and other elements necessary to carry out a given course of action; they are supported by budgets.
Programs may be of various size & duration.
 Projects
Projects are a part of a general program and direct the efforts of individuals or work groups towards the
achievement of well defined goals. They are typically less comprehensive & narrower in focus than programs;

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and usually have predetermined target dates for completion. Project is a subset of a specific program. It is a
smaller portion of a program. Projects are connected with a major program but a project can be handled by itself.
 Budgets
Budget is the plan required in numerical terms. It is referred as a numerated/ numberized program.
Budget is a fundamental planning instrument in companies that deals with the future allocation and utilization of
various resources to different organizational activities over a given time period.
Budget can be expressed in financial terms; labor units; products/ unit of product; machine hours or in any other
numerically measured term. Budget is necessary for control; and serves as a benchmark for controlling.
Budgets are 3 types.
 Variable or flexible budget - budgets that vary according to the organization’s level of output.
 program budget - when an organization & its departments identify goals, develop detailed programs to
meet the goals estimate the cost of each program. To prepare effective program budget, a manager must
do some fairly detailed & through planning.
 Zero – base budget - the programs started from the scratch or “base zero.
Programs are the most comprehensive, projects have the narrower scope and often undertaken as a part of a
program. Budgets are developed to support programs & projects.
Classification of plans based on time
All planning deals with the future; and the future are measured in time. All the kinds of plans are interrelated and
one is the derivative of the other. Plans in terms of time periods are classified into three as long term/ range;
intermediate range and short range.
 Long – range planning:
Long – range planning has longer time horizon; and usually concerned with the future direction of the
organization but not concerned with the immediate future but with distant future. The time usually ranges from 5-
10 years, but the time length is a relative term that depends on the size & the nature of the organization.

 Intermediate – range planning

Intermediate – range planning ranges between long & sort range planning; and they are usually developed for 1-5
years, but the time dimension can also vary depending on the size & nature of the organization.
 Short – range planning
Short – range planning are not developed separately. They are also taken as operational plans derived from the
long ranging or intermediate plans. The time length is commonly taken as less than 1 year.
What is long or short range in most cases depends on the size of the organization & the type of business of the
organizations.

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Classification based on scope/ breadth
Planning that is strategic in nature; focuses on changing the competitive position and the overall performance of
the organization is the long term.
Based on scope, plans are classified into 3 categories as Strategic plan; Tactical plan & Operational plan.
 Strategic planning
Strategic plan is a general plan outlining decisions of resources allocation, priorities, and action/ steps necessary
to reach strategic goals. Strategic planning is a process of analyzing & deciding the organs mission; objective;
strategy (major courses of action) and the major resource allocations.
It is developed by top level managers; mostly long – range in its time horizon; expressed in relatively general,
non-specific terms & a type of planning that provides a general direction to the organization.
Strategic planning is the process by which the organization's strategies are determined. In the process, three basic
questions are answered:
1. Where are we now?
2. Where do we want to be?
3. How do we get there?
The "where are we now?" question is answered through the first three steps of the strategy formulation process:
1. Perform internal and external environmental analyses,
2. Review vision, mission and objectives, and
3. Determine SWOT: Strengths, Weaknesses, Opportunities and Threats.
SWOT analysis is very crucial. Going on to strategy choices without a comprehensive SWOT analysis is risky.
Strengths and weaknesses come from the internal environment of the firm. Strengths can be exploited, built upon
and made key to accomplishment of mission and objectives. Strengths reflect past accomplishments in
production, financial, marketing and human resource management. Weaknesses are internal characteristics that
have the potential to limit accomplishment of mission and objectives. Weaknesses may be so important that they
need to be addressed before any further strategic planning steps are taken. Opportunities and threats are
uncontrollable by management because they are external to the firm. Opportunities provide the firm the
possibility of a major improvement. Threats may stand in the way of a firm reaching its mission and objectives.
 Tactical planning
Tactical plan is a plan aimed at achieving tactical goals and developed to implement specific parts of strategic
plan. It refers to the process of developing action plans through which strategies are executed. It is concerned with
shorter time frame & narrower scopes than strategic planning. Departmental managers in organizations are often
involved in tactical planning. The strategic planning & tactical plan are highly interrelated.
 Operational planning

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Operational plans focuses on carrying out technical plans to achieve operational goals. Operational planning is
mainly short range; more specific & detailed. It is made at operational level & concerned with day- to day; week
– to - week activities of the organizations.
 Contingency planning
Contingency planning is an approach that has become very popular in today's rapidly changing business
envelopment. It is the determination of alternative courses of action to be taken if the original plans are disrupted
or become inappropriate due to the changing circumstances. It is proactive in nature & the management tries to
anticipate changes in the environment and prepares to cope with the future events. It is necessary at each level of
management and for strategic, tactical, and operational plantings.
It is the development of two or more plans based on different conditions. The plan to be implemented is
determined by the specific prevailing situation.
The planning process
The planning process indicates the major steps taken in planning. And generally there are 10 steps in planning
process.
Step 1: Understanding the existing situation
Awareness to the external environment to the organization is great important in planning to identify opportunities
(O) & threats (T) and identify strength (S) & weaknesses (W) of an organization.
To understand external environment organizations should analyze economic situations (competition, prices,
demand, supply, etc.); Political situations (government policies, taxation, peace & stability, etc.); Socio – cultural
situations: (culture of the society, direction in change of the culture, attitude of the society towards different
products, etc.); Environmental situations and Technological situations. In addition to external environment,
understanding the internal environment is also essential, i.e. different types of resources an organization
possesses. Therefore managers must look at O and T as well as S &Ws, and understand what problems they wish
to solved & why, and know what they expect to gain.
Setting realistic objectives depends on this awareness. Planning requires a realistic diagnosis of the opportunity
situation.
Step 2: Forecasting
Forecasting is assumption what the future looks like. To decide where one wants to go, it is necessary to have
information about what the future looks like. Planning is deciding what is to be done in the future. The future is
full of uncertainties; the manager must make certain assumptions about it in order to plan properly. These
assumptions are based on forecasts of the future.
Step 3: Establishing objectives: Objectives established for the entire enterprise and then for each subordinate
work unit. They specify the expected results and indicate the end points what is to be done, where the primary

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emphasis to be located, & what is to be accomplished by the network of strategies, policies, procedures, rules,
budgets, & programs.
Organizational objectives give direction to the major plans, by reflecting these objectives departmental objectives
defined, departmental objectives intern control objectives of subordinate departments, etc. down the line. The
objectives of lesser departments will be more accurate if the subdivisions managers understand the over all
organizational objectives and the derivative goals.
Step 4: Determining the alternative courses of action
Determining the alternative courses of action is searching for & examining alternative course of action
(strategies), especially for those not immediately apparent. The more common problem is not finding alternatives
but reducing the number of alternatives. It is seeking out alternative courses and examining their strong & weak
points.
Step 5: Evaluating alternative courses of action
Evaluating alternative courses of action is assessing the alternatives by weighing them in light of premises and
goals.
Step 6: Selecting a course of action
Selecting a course of action is the point at which the plan is adopted. It is the real point of decision making.
Step 7: Formulating derivative plans
Derivative plans are those support the basic or main plan.
Step 8: Numberizing plans by budgeting
After decisions are made & plans are set, the final step is giving them meaning. Budgeting is to numberize plans
by converting them into budgets. The organization’s budget represents the sum total of income & expenses. If
done well, budgets become a means of adding together various plans & also set important standards against which
planning progress can be measures.
Step 9: Implementing the plan
After selecting optimum alternative, the manager has to develop an action plan to implement it. The manager
must decide these issues

o Who will do what

o By what date will the tasks be initiated & completed
o What resources will be available for the process (human & material)
o How will the plan be evaluated
o What reporting procedures are to be used
o What type & degree of authority will be granted to achieve these ends

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Step 10: Controlling & evaluating the results
Once the plan is implemented, the manager must monitor the progress, i.e. evaluate the reported results, and make
any modifications necessary. Plans have to be modified because the environment is constantly changing.
Modification is needed because plans are not quite perfect when they are implemented.
Organizational Objectives
Types of objectives in organizations
Objectives can be separated in to two categories: Organizational and individual.
Organizational objectives are the formal targets of the organization and are set to help the organization
accomplish its purpose. They concern such areas as organizational efficiency, productivity, and profit
maximization.
Individual objectives: which also exist within organizations, are the personal goals each organization member
would like to reach through activity within the organization. These
Objectives might include high salary, personal growth and development, peer recognition, and societal
recognition.
A manager problem arises when organizational objectives and individual objectives are not compatible. For
example, a professor may have an individual goal of working at a university primarily to gain peer recognition.
Perhaps she pursues this recognition primarily by channeling most of her energies it to research. This professor’s
individual objective could make a significant contribution to the attainment of organizational objectives if she
were at a university whose organizational objectives emphasized research. Her individual objective might
contribute little or nothing to organizational goal attainment, however, if she were employed at a teaching
oriented university. Rather than improving her general teaching ability and the quality of her courses, as the
university goals would suggest, she would be secluded in the library writing research articles.
Goals and objectives commonly used interchangeably. They are closely related to planning. Goals and objectives
represent the end point towards which all management functions are aimed. And also they are the desired future
outcomes/ state end results. i.e. they represent not only the end point of planning but also the end towards which
organizing, staffing, leading and controlling are aimed.
They specify the expected results and indicate the end point of what is to be done; where the primary emphasis is
to be placed and what is to be accomplished by the network of strategies, policies, procedures, rules, budgets and
programs.
Goals and objectives are the important ends towards which organizational and individual activities are directed
Purposes of goals
Goals serve four important purposes.

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 1. To provide guideline and direction
 They provide guidance and a unified direction for people in the organization. They can help everyone
understand where the organization is going and why getting there is important
2. To facilitate planning
 Goal setting practices strongly affect other aspects of planning; and good planning facilitates future goal
setting. Goal settings & developing plans to reach the goals should be seen as complimentary activities.
3. To inspire motivation and commitment
 Goals can serve as sources of motivation to employees of the organization. They motivate peoples to work
harder if attaining the goal is likely to result in rewards.
4. To promote evaluation and control
 Goals provide an effective mechanism for evaluation and control. This means that performances can be
assessed in the future in terms of how successfully today’s goals are accomplished.
The Difference between goals and objectives
Although goals and objectives commonly used interchangeably, they are differentiated as follows.
 Goals are the refinements of an organization’s mission whereas objectives state end-results and they are
more specific and need to be supported by sub-objectives.
 Goals are broad whereas objectives are narrow.
 Goals are general intentions; whereas objectives are precise.
 Goals are intangible; whereas objectives are tangible.
 Goals are abstract; whereas objectives are concrete.
 Goals can't be validated as is; whereas objectives can be validated.
 Goals can be likened to a mission and to complete the mission one has to complete certain tasks.
 Objectives make up a goal and they are SMART (specific; measurable; attainable/ achievable; relevant
and time bound)
Example:
Goal: To speak English fluently
Objective: Take two college English courses in three months.
Objective: Work with a language tutor once a week

Hierarchy of objectives/ goals

Organizations establish different kinds of goals. Goals vary by level, area, and time frames. Goals/ Objectives
form a hierarchy reaching from corporate purpose & mission down to individual goals as well as networks within
an organization. Hierarchy of objectives is a series of objectives linked to one another.

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 Top level

Middle level

Lower level

(Mission/ purpose; overall objectives; more specific overall objectives; division objectives; department/ unit
objectives individual)
Fig: The relationships of objectives and organizational hierarchy
Overall objectives need to be supported by sub-objectives. Each higher level objective is supported by one or
more lower level ones. Managers at different level are concerned with different kinds of objectives.
o The top levels very much involve in determining the purpose/ mission & the overall objectives of the firm
as well as the more specific overall objectives in the KRAs.
o Middle levels are involved in setting of KRA objectives, division & department objectives.
o Lower levels primarily concerned in setting objectives of department & units as well as of their
subordinates.
o Individual objectives consisting of performances & development of goals. Managers at the top level
should set objectives for their performance & development.
Key result areas (KRAs) are areas where performances are essential for the success of the organization. They are
operative objectives
Organizations can use to set objectives top–down approach or bottom–up approach. In top–down approach the
upper–level managers determine the objectives for subordinates where as in bottom–up approach the subordinates
initiated the setting of objectives for their position and present them to their superiors.
Both approaches are important, but the emphasis should depend on the situation, i.e. the size of the organization;
the organizational culture; the leadership style and the urgency of the plan.
Management by objectives (MBO)
Definitions & applications of MBO differ widely. Some think it as an appraisal tool; others see it as motivational
technique; and others consider it as planning & controlling device.
MBO is a system of managing or a special planning technique. It is a comprehensive managerial system that
integrate many key managerial activities in a systematic manner and that consciously directed toward the
efficient & effective achievement of organizational & individual objectives. MBO is the philosophy of

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management and an approach to planning. It emphasizes that the management and the subordinates work together
in identifying and setting up of objectives and make plans together in order to achieve these objectives. And also
it is based on the assumption that involvement leads to commitment
MBO begins when employees with their managers establish a set of goals that serves as a basis for the
development of their work plan. Ones mutually agreeable goals are determined criteria for assessing work
performance are identified. Next/ then employees formulate & implement the action plans necessary to achieve
their goals & review their progress with their managers periodically. At the end, the performance of the
employees is compared with the goals established at the beginning of the period. Performance rewards should be
based on the goals achieved.
MBO programs provide a foundation for a more integrated & system oriented approach to planning and enhances
communication between employees & their managers. And MBO approach leads to a more participatory work
environment and employees have a voice & can have inputs into their jobs how it should be designed and what
their performance targets should be.
Planning techniques
Forecasting is one of the tools for planning and decision making. To plan, managers must make assumptions
about future events. Forecasting is the process of developing assumptions or premises about the future that
managers/ planners can use in planning and decision making.
Forecasting techniques
To carry out various kinds of forecasting, managers use different techniques. The common models are the
quantitative forecasting techniques and the qualitative forecasting techniques
 The quantitative forecasting techniques
They use mathematical analysis. The most quantitative techniques are Time-series analysis and casual modeling.
 Time-series analysis
Time-series is analysis forecasting technique that extends past information into the future through calculation of a
best fit line. Time –series analysis assumes that the past is the past is a good predictor of the future; it is most
useful when the manager has a lot of historical data are available, trends are stable, and patterns are apparent.
 Casual modeling
Casual modeling is a group of different techniques that determine casual relationships between different variables.
The common casual modeling forecasting techniques are regression modes; econometric models and economic
indicators.
Regression models are equations that use one set of variable to predict another variable, i.e.
Econometric models are casual models that predict major economic shifts and the potential impact of those shifts
on the organization.
Economic indicators are a key population statistic or indexes that reflect the economic well-being of a population.

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The qualitative forecasting techniques
Organizations also use several qualitative techniques to develop their forecasts. The qualitative forecasting
techniques are one of the several techniques that rely on individual or group judgments or opinions rather than on
mathematical analysis. Some of the widely used qualitative approaches to forecasting are
 The Delphi method/ procedure
o A mechanism for managing group decision making activities; can also be used to develop forecast.
 The jury-of-executive/ expert-opinion approach
o Involves using the basic Delphi process with members of top management. In this instant top
management serves as a collection of experts asked to make prediction about something.
 The sales-force-composition method
o Is the pooling of the predictions and opinions of experienced sales people. Their experience
enables to forecast quite accurately what various customers will do.
 The customer evaluation/expectation
Involves a survey of customers as to their future needs. It is collecting data from costumers of the organization.
The customers provide estimate of their future needs for the goods and services that the organization supplies, and
then the managers combine, interpret and act on their information.

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