Jasmeet Kohli

Monday, 22 October 2018

Forecasting: Why is it required?

Forecasting in business is a very critical activity done by organizations to predict future outcomes based on historical data & the management views for budgeting, planning & estimation in order to prepare the organization to achieve its goals & targets. It helps in determining the success of the business & minimizing the role of “luck, chance, gut feeling, etc.” in critical business decisions.

1. Promotion of business: Forecasting helps in the promotion of business by anticipating the uncertainties and risks in the business & taking appropriate measures. It also helps in estimating the demand for products & services & how to increase the demand, how the organization will face the competition, etc.
2. Efficient capital utilization: The capital requirements of a business depend entirely on sound financial forecasting. Forecasting helps in estimating the financial requirements of a business & efficient utilization of the capital by calculating the potential sales & costs & forecast the funds required for other important things like expansion, development etc.

3. Smooth running of business:  Accurate forecasting helps the organizations know their expected earnings to regulate their cash flow to meet their operational expenses & other financial commitments.  
4. Good decision making: The correctness of management decisions related to utilization of resources for production, is heavily dependent on accurate forecasting. It also helps the business to face adverse conditions & unforeseen contingencies.
5. Success in business: Accurate sales forecasting helps in preparation of plans of other depts in the organization like procurement of raw materials, financial planning of working capital, manpower planning about how much people are required, production planning about what & how much to produce, etc.
6. Plan Formulation: Forecasting is an essential element in planning since planning premises include forecast data having enormous implications. In fact, forecasting is done prior to planning in order to make effective & robust business plans. Hence, forecasting and planning are closely related & so is their success.
7. Co-Operation and co-ordination: Forecasting is a herculean task that requires cooperation & coordination between all the depts in a company. A crucial byproduct of forecasting is team spirit and coordination which greatly improves the work culture in the organization.
8. Effective Control: Forecasting helps the different depts. & their key decision makers about their weaknesses & helps in implementing appropriate measures to overcome these weaknesses & achieve better control they can overcome these weaknesses.

Tuesday, 2 October 2018

Cost of "Not Improving" 

Just few weeks ago, General Electric (GE) was dropped for the first time from the Dow Jones Index in over 110 years. Also. GE happened to be the last original member of the group when Dow Jones started. If one looks at the The Dow Jones Index of 1995, one would find that about half of the companies there have been replaced with others in just last 20 years.

What it shows is that in today's rapidly changing business environment, an organization has to continuous keep on adapting itself to survive & be relevant in the marketplace. In spite of this, many organizations function at a very slow pace & in a very rigid manner not realizing that it can prove very costly in the long run. Delay in taking decisions, losing opportunities, waste in operational processes, wrong selection of people etc are the symptoms of the work culture of such organizations.

Such kind of working may be alright when things are alright but can be disastrous in case of any adverse conditions. This "Cost of Not Improving" in an organization's functioning, culture & mindset can threaten the very survival of the organization & also can make the organization severely suffer in the following ways: 
  • Slow decision making due to multiple layers of decision making or due to a "person specific approach" rather than a "process specific approach" could result in costly delays in taking critical business decisions
  • Not taking timely actions, thus encouraging a "bureaucratic culture" in the organization which encourages just pushing files from one desk to another, rather than approving them quickly
  • People at important positions are appointed or selected based more on "personal preferences" or "personal connections" rather than their abilities, qualifications or experience
  • Cost escalations due to delay in decision making
  • Taking temporary short-term measures for long term problems
  • Doing patchwork solutions where deep surgery is required
  • Taking action only after a problem becomes a crisis
  • Not keeping up with the competitors product offerings & decisions even if its affecting your own business, branding & market share
  • Giving low priority to preventive measures to address problems
  • Not taking suitable action to maintain your competitive edge in the market
  • Lost opportunities due to lack of timely decisions & action  
  • Endlessly waiting for information    
  • Very less or lack of interaction with vendors severely undermining their own capabilities & advantages.  

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