ENVIRONMENT ANALYSIS AND FORECASTING

• Any Industry must be cautious about the changes that takes place in the environment

• It should be capable of sensing the changes in the environment and taking proper action

Eg:- Import policy of Govt. affects the prospects of cement industries in India

Environment Analysis may be divided into four stages

1. Scanning the environment to detect warning signals

2. Monitoring specific environmental trends

3. Forecasting the direction of future environmental changes

4. Assessing current and future changes

1. Scanning• Process of identification of indicators

of potential changes• Changes may occur suddenly or

evolve over a time• Aimed at alerting the Orgn. about the

change before it gets fully formed• It facilitates time for strategic actions

Eg:- Decision of RBI to raise interest rate

2. Monitoring

Involves an in-depth study of factors obtained from scanning

It evolves certain relationship between factors

Helps identification of factors for further scanning

Eg:- Factors related to inflation

3. ForecastingIt involves development of range, speed and intensity of change

Provides information about the impact of changes on the Orgn. in future

From the experiences in the past, action plan in the future may be extrapolated

4. Assessment

Involves drawing up of possible impact of environmental changes on the Orgn. with facts and figures

This is the conclusion of all the above three processes

It narrates all the possibilities of impact of environmental changes on the organization

STEPS INVOLVED IN ENVRONMENTAL ANALYSIS

• Identify all strategic environmental issues that are likely to affect the industry• Prioritize these issues in order of their importance to the firm• Select the most important issues for focusing• Prepare a preliminary description of these issues

• Draw the implications of the issues for organisational performance. Explore what can be done by the Orgn. to cope with the issues

• Develop detailed descriptions of worst case , best case and most likely case set of assumptions

• Discuss these assumptions with top management and refine them

• Formulate action plan for each cases

TECHNIQUES FOR GATHERING INFORMATIONS FOR APPRAISING

THE ENVIRONMENT

1. Verbal and Written InformationDocumented Information, most of which are publishedInformation obtained orally, when people hesitate to publishPersonal contacts may be helpful in getting documented and verbal information

• Verbal information can also be obtained through electronic media, seminars, workshops, etc.

2. Search and Scanning

Can seek the help of organisations which collect information continuously and systematically from magazines, newspapers and other media

Can keep an MIS in the industry

3. Spying

To get secret information, some people do spying especially in the case of defence and research

Eg: Nuclear know-how from Pakistan

Industrial espionage by Japanese

ENVIRONMENTAL FORECASTING

Variables relevant for one industry may not be relevant for another

Eg: a) Diesel price rise may affect the railways in the regions where it depends on diesel engines whereas it does not affect in those regions where it depends on electricityb) Falling birth rate affects certain firms which produce kids wear and accessories

TYPES OF FORECASTING

Various types of forecasting are

• Economical

• Social

• Political and

• Technological

• Economical Forecasting

Economical factors like GDP growth, per capita income, Balance of Payment, etc. affect the prospects of industry

These details can be obtained from the publications of World Bank, IMF, etc.

Eg: Details of power development indicates the scope of investment in power sectorand the prospects of industries like generators, transformers, cables, etc.

• Social Forecasting

Information regarding life style pattern, social attitudes, etc. have profound impact on business

Eg: Annual income of families have an influence on life style. From the knowledge of GDP growth, it is possible to predict the change in life style

• Political Forecasting

The style and thought process of political leadership can influence the prospects of industry USSR

Eg: a) Communist Govt. in Kerala and WB

b) Erstwhile USSR and Eastern Europe

• Technological Forecasting

Innovation in technology can pervade and diffuse into many areas

How best the latest development in technology can be utilized for the industry is to be planned

Eg: Development in Electronics

Development in Information technology, PC and internet

TECHNIQUES FOR ENVIRONMENTAL FORECASTING

1. Econometric Technique

• If the variation in one parameter is known, the variation in a related parameter can be predicted

• Regression analysis is used

• Linear or non-linear correlation can be formed

Eg: Demand of a particular product=f(percapita income, lifestyle)

• Trend Extrapolation

From the past behaviour of a parameter, future can be extrapolated

Eg: Whether forecasting, demand for certain items like medicines in a particular season

• Judgement Model

It makes use of people who have intimate experience in the relevant field

Eg: Sales men’s opinion about sales potential

• Brain Storming

A group of knowledgeable persons are encouraged to generate ideas and based on that forecasting is made

• Delphi Model

Opinions of a group of experts are collected by using questionnaire or interview and is documented. Then it is circulated among panel members who are more experienced. They will evaluate it and recirculate among the experts and reach a consensus view

BENEFITS OF ENVIRONMENTAL ANALYSIS

• It provides useful picture of the vital factors which affect the business

• It helps to understand the transformation of the environment

• It provides an idea of the threats and opportunities for the business

• It helps suitable modifications strategies as and when required

• It keeps managers informed, alert and dynamic

LIMITATIONS

• The forecasting techniques may not be efficient

• Inappropriate selection of variables for analysis

• Fault in establishing the functional relationship between variables

Thanks…..