Chapter 7: FORECASTING & PLANNING FOR STRATEGY

Resource Planning – process of identifying, forecasting, and allocating resources at the right time and cost.
Ensures the efficient and effective utilization of resources across the organization in achieving project
objectives.

Forecasting
- technique that uses historical data to make informed estimates.
- used to determine how to allocate resources or plan for anticipated costs for an upcoming period of
time
- leads to cost savings and improved customer satisfaction

Factors affecting a Forecast

Historical Data - provides insights to future patterns and trends
Market Trends - provides crucial insights into the factors driving future demand and market conditions
Economic Conditions - influence consumer spending and demands
Technological Changes - can alter industry dynamics, consumer behavior, and market trends
Competitor Actions - directly impact market dynamics and competitive positioning
External Events - unforeseen events like natural disasters can impact forecasts
Consumer Preference and Demographics - changing preferences, demographics and lifestyle affect
demand patterns
Demand Forecasting – process of analyzing historical data to predict what customer demand will be for a
product or service in the future.
Qualitative Method – method of making predictions by relying on human judgement, intuition, and
experience.
Qualitative Tools
- Delphi Method - panels of experts are questioned individually to gather their opinions
- Market Research - surveys, interviews, focus groups to gather customer insights
- Salesforce Polling - speaking with sales staff who work closely and have interactions with
consumers
- Executive Opinions - opinions of experts from different departments of the company are
considered
Quantitative Method - can use to make accurate predictions to guide future business decisions.
Quantitative Tools
- Straight-line Method - calculates future sales while also considering potential future growth.
- Naive Method - anticipating similar results to the data gathered from the past.
- Seasonal Index - analyzes available data while accommodating the calculations for any seasonal
patterns that appear.
- Moving Average Method - calculating an average of a subset that represents a long amount of
time.

MODELS AND MODELLING IN FORECASTING

Forecasting Model – a forecasting model is a system that makes use of historical data and statistics to help
predict future outcomes or trends.

Forecasting models are usually based on three main steps: 1. Reporting/Analysis 2. Monitoring 3.
Predictive Analytics

Forecasting Model
1. Time Series Model: good for analyzing historical data to predict future trends. Suitable for
forecasting based on historical patterns and trends. Capture seasonality, cyclicality, and other time-
based patterns. Relatively simple to implement and interpret. Require minimal data input and
computational resources.

2. Econometric Model: uses economic indicators and relationships to forecast outcomes. Use of
statistical and mathematical models to develop theories or test existing hypotheses in economics and
 to forecast future trends from historical data. It subjects real-world data to statistical trials and
compares the results against the theory being tested

3. Judgmental Forecasting Model: leverages human intuition and expertise. Leverage human
expertise, intuition, and domain knowledge. Suitable when historical data is limited, unreliable, or non-
existent. Incorporate qualitative factors and expert opinions into the forecasting process. Can provide
valuable insights and alternative perspectives

4. The Delphi Method: forms a consensus based on expert opinions. Assemble a group of experts with
relevant knowledge and expertise in the subject matter.

5. Scenario Planning: more creative and exploratory, this focuses on the range and diversity of
possible futures. Identify the key variables or factors that significantly influence the forecasted
outcome. These variables could include economic indicators, technological advancements, regulatory
changes, or consumer behavior.

SIMPLE FORECASTING MODELS

Moving average model - is used to calculate the average of a fixed number of past data points to forecast
future values. It uses past forecast errors in a regression-like model. Moving averages are used in time series
forecasting to predict long-term trends from time series data while "smoothing out" fluctuations over time.

Exponential Smoothing Model – a time series forecasting technique called exponential smoothing projects
future values by utilizing an exponentially weighted average of past observations. By giving more weight to
new observations and less weight to older observations, this technique enables the forecast to adjust to
shifting data trends. The forecast that appears is a smoothed representation of the initial time series that is
less impacted by noise or irregular data fluctuations.

COMPLEX FORECASTING MODELS

Autoregressive Integrated Moving Average - a statistical analysis model that uses time series data to better
understand the data set or predict future trends. The model's goal is to predict future securities or financial
market moves by examining the differences between values in the series instead of through actual values. An
ARIMA model is characterized by 3 order parameters: p, d, q.

Random Forest Model – an effective ensemble of decision tree algorithms that can be used for classification
and regression predictive modeling. It builds multiple decision trees (called the forest) and glues them
together to get a more accurate and stable prediction. The forest it creates is a collection of decision trees
trained with the bagging method.

MATHEMATICAL PROGRAMMING MODELS

Linear Programming – a technique of mathematical modeling that aims to maximize the distribution of
scarce resources to accomplish a particular goal.

Economic Order Quantity – it is a form of inventory control that guarantees a company places the correct
quantity of orders for inventory to satisfy the product's demand

The Critical Path Method (CPM) – is a project management technique used to identify critical tasks and
determine the longest possible duration for project completion, known as the critical path.

BUDGET MODELS
Zero-Based Budgeting – ZBB starts with a "blank slate" where each department begins with a budget of
zero dollars

Flexible budgeting - is a dynamic budgeting approach that adjusts spending levels based on changes in
activity or performance metrics, such as sales volume or production output.
Incremental budgeting - is a straightforward budgeting approach that involves making adjustments to the
previous year's actual spending levels to create the budget for the upcoming period.

DECISION MODELS
Rational decision-making model - prioritizes the application of logical steps to reach the most optimal
solution. This approach often entails evaluating various options simultaneously to select the one that promises
the highest quality result

Intuitive decision-making model - relies on emotions and gut instincts rather than strict logical reasoning to
arrive at decisions. The intuitive decision-making process is less formalized and may draw upon past
experiences and knowledge of similar goals or challenges to identify a viable solution.

Recognition-primed decision model - introduced by Gary A. Klein in his book "Sources of Power, " relies on
rapid cognition and past experience to facilitate decisionmaking, particularly in high-pressure settings

Sensitivity analysis - also known as a what-if analysis, is a mathematical method employed in scientific and
financial modeling to investigate the impact of uncertainties on the overall uncertainty of a model. Allows you
to examine how a particular alteration could impact your situation.

Methods for Applying Sensitivity Analysis

DIRECT METHOD - you would substitute different numbers into an assumption in a model.
INDIRECT METHOD - you insert a percent change into formulas instead of directly changing the value
of an assumption.
Chapter 8: DEALING WITH MARKETING STRATEGY

MARKETING – is about connecting your company with potential customers and connecting those customers
with your products
MARKETING STRATEGY – is a long-term plan for achieving a company's goals by understanding the needs
of customers and creating a distinct and sustainable competitive advantage. It encompasses everything from
determining who your customers are to deciding what channels you use to reach those customers
Marketing strategy should help you define the following for your company:
- Target audience
- Value proposition
- Product mix
- Brand messaging
- Promotional initiatives
- Content marketing
IMPORTANCE OF MARKETING STRATEGY
Creating – and following – a marketing strategy is essential to setting the direction not just for your marketing-
related activities but also for your entire business.

HOW TO CREATE A SUCCESSFUL MARKETING STRATEGY

- Set definable business goals
- Identify and research the target market
- Focus on the 7 P's Develop product plans
- Identify the key benefits
- Craft your positioning and messaging
- Define your marketing mix

MARKET ORIENTATION – is an approach to business that prioritizes identifying the needs and desires of
consumers and creating products and services that satisfy them.
STRATEGIC PLANNING – aims at shaping and reshaping the company’s businesses and products so that
they yield target profits and growth. Strategic planning can also be described as a sequence of activities that
leads to a grand design for business success.
MARKET-ORIENTED STRATEGIC PLANNING – it is “the managerial process of developing and maintaining
a viable fit between the organization’s objectives, skills, and resources and its changing market opportunities”
IMPORTANCE OF MARKET-ORIENTED STRATEGIC PLANNING
A market-oriented strategy helps companies create a unique and differentiated image in the minds of its target
market.

STRATEGIC MARKETING PLANNING – it is the process in which the company develops marketing
strategies to meet its strategic goals and objectives. The main steps include identifying the company's current
situation, analyzing its opportunities and threats, and mapping out marketing action plans for implementation
STRATEGIC PLANNING is a systematic process that helps you set an ambition for your business' future and
determine how best to achieve it. Its primary purpose is to connect three key areas: • YOUR MISSION •
YOUR VISION • YOUR PLAN
STRATEGIC MARKETING PLANNING PROCESS •Define mission and objectives •Assess Situation •Identify
Target Market •Identify competitive advantage •Develop strategies •Prepare action plan •Implement the plan
•Monitor and Control •Revise the plan •Create a new plan
OBJECTIVES OF PRICING – the goals that guide a company in setting the price of a product or service
PRICING OBJECTIVES
Profit Maximization - This objective focuses on setting prices to maximize the company’s profitability.

Market Share Leadership - Companies aiming for market share leadership set prices to outcompete rivals
and dominate market share.
Customer Retention - The focus of a customer retention pricing objective is on retaining existing customers
and building loyalty by setting prices that are attractive to repeat buyers.
Survival - Survival becomes a priority in turbulent markets or during economic downturns, focusing on staying
afloat rather than profitability.
Market Penetration - This involves setting lower initial prices to attract new customers and gain market entry.
Competing with Similar Companies - A business needs to make a product or service more competitive
within its broader market.
Pricing policy – is a company’s approach to determining the price at which it offers a good or service to the
market
Cost-based pricing policy - calculates the average cost of production for a good or service and then
accounts for the profit margin your company desires.
Value-based pricing policy - tries to understand the select factors distinguishing your specific good.
Demand-based pricing policy - maximize profit by responding to the various consumer behaviors found
in markets.
Competition-based pricing policy - Businesses might use a competition-based pricing policy to respond
to what competitors are charging for similar products
Pricing strategy – is a plan for setting the best price for any products or services
Value-based Pricing - a strategy that some businesses use to set product prices at a price point that
they believe the consumer is willing to pay.
Cost-plus Pricing - Businesses set prices by determining the cost of production and their ideal profit
margin.
Competitive pricing - Businesses set prices based on what competitors charge for comparable
products.
Penetration pricing - When a business sets the price of a product or service low at the beginning, then
raises the price once the company is more established.
Price skimming - Starts by setting the maximum price and gradually lowering it over time.
Hourly pricing - Often used in service-based industries, hourly pricing establishes prices based on the
time spent on a particular task or service.
Project-based pricing - Also common in service-based industries. This method determines prices
based on the scope, complexity, and resources required for each project.
Bundle Pricing - Bundle pricing is when a company combines multiple products or services and offers
them at a lower overall price than what each item would individually cost.
Freemium pricing - This method of offering a basic version of a product or service for free and
charging for additional premium features or advanced functionality.
Premium Pricing - This strategy positions the company as exclusive and superior in value in
comparison to lower-priced competitors
Budget control – refers to the process of managing, monitoring, and adjusting a company’s budget and cash
flow to ensure that the business remains on track to meet its financial goals and deliver on the organization’s
objectives
There are several different tools and techniques that can be used in budgetary control. These include:
A budget variance report. A budget control system. Bookkeeping and accounting software. Cost-
Benefit Analysis.
Zero-based budgeting (ZBB) is a financial management approach where organizations build budgets from
scratch each budgeting cycle rather than using the previous budget as a starting point.
Flexible Budgeting is a dynamic approach that adjusts the budget based on actual activity levels. It provides
a useful tool for marketing departments because it allows them to adapt their budgets in response to changes
in market conditions or campaign success rates.
Variance Analysis is a critical tool for budgetary control that involves comparing actual outcomes to budgeted
figures.
Activity-Based Budgeting (ABB) focuses on the costs of activities that drive an organization's operations.
Chapter 9: DEALING WITH OPERATIONS MANAGEMENT STRATEGY

ESSENTIALS OF ORGANIZATIONAL OPERATIONS

Operations management involves the planning and production of goods or services offered by a business and
requires careful planning in the form of an operations strategy. The operations function is sometimes called
the production function, or the production and operations function.

Manufacturing operations transform or convert such inputs as raw materials, labor skills, management
skills, capital, and sales revenue into some product, which the organization then sells. Service operations
also transform a set of inputs into a set of outputs.

Continuous production system – arranges equipment and work stations in a sequence according to the
steps to convert the input raw materials into the desired component or assembly.
Intermittent production system – or job shop differs greatly from the continuous system in that it is designed
to provide much more flexibility.

The production system consists of several aspects of production activities (1) location of plant, (2) its
layout, (3) manufacturing capacity, (4) design of the product, (5) technology (degree of
mechanisation/automation), and the like.

The second area of significance in production strategy and policy making is operations planning and
control.

Supply chain management is another aspect of operations strategy and policy. This is generally referred to
as logistics strategy.

7 broad aspects to production strategy

(a) Selecting the level of production capacity.
(b) Location of the plant
(c) Timing of investment in a new plant.
(d) Convert or build new?
(e) Make or buy
(f) The problem of flexibility
(g) Headcount levels required and whether or not these levels will need to change or the mix of labor skills will
need to change

Capacity Planning
(a) Demand matching – attempts to match demand with production runs for the same quantity.
(b) Operation smoothing – gears production to average demand, but requires the holding of considerable
levels of finished goods inventory when demand is seasonally low
c) Subcontracting – i.e. producing at a minimum level, and buying in the remainder.
The selection of one of the capacity-reducing strategies would have regard to the following: (a) Costs
and savings; the potential sales price of unwanted factories or plants,
(b) Employee welfare.
(c) The possibility of strike action against redundancies and closures.
(d) The threat of competition in the case of a sell-off

Capital rationing means not having enough capital to finance all the investments which are competing for
funds and so the available capital must be rationed out in a suitable manner to make the best use of what
there is
Make or Buy – decision to produce parts/components in-house or to subcontract to external suppliers
Balancing cost, resource allocation, and strategic goals

Formulating Production Strategy

Study of Corporate Plan and Statement of Objectives, Analysis of the Present Production Operations and the
Environmental Forces, Review of Sales Forecast and Marketing Mix, Marketing Strategy Decisions

Formulating Production Strategy

(a) Extent of Production Activity (b) Choice of Manufacturing Process (c) Capacity Decisions (d)Equipment
Investment (e) Physical Facilities Decisions

Plant Location – is essentially an investment decision having long term significance and implied economic
effects.
Plant Building – providing physical facilities
Plant Lay out – arrangements and locations of production machinery, work centers and auxiliary facilities and
activities
Maintenance of Equipment – important facility of planning consideration. To avoid unexpected breakdowns
and thus minimize costs associated with machine breakdowns
Preventive Maintenance – based on the premise that good maintenance prevents breakdowns. Means
preventing breakdowns by replacing worn-out machines before their breakdown.

Logistic Strategies
The objective of logistics strategy is to ensure that materials and ingredients of the right quality and quantity
are available at the right place and at the right price.

IT is required by the economic context – IT is an enabling technology, and can produce dramatic changes
in individual businesses and whole industries
IT can revolutionize management information – More advanced executive information systems, and
decision support systems, and expert systems can be used to enhance the flexibility and depth of MIS

Stakeholder is a person or organization that has an interest in an enterprise. IT involves many stakeholders,
as many parties both within and outside the organization have an interest in IT

Parties interested in an organization’s use of IT

Other business users, Governments, IT manufacturers, Consumers, Employees and internal users

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CHAPTER 10: DEALING WITH OPERATIONS MANAGEMENT STRATEGY

SUPPLY, MATERIALS AND INVENTORY STRATEGIES

Materials – substance or mixture of substances that constitute an object.
Raw materials are the input goods or inventory that a company needs to create an output which are
capitalized as product cost.

5 RS OF MATERIALS MANAGEMENT STRATEGY

MTAPS (Right Material, Time, Amount, Price, Sources

TYPES OF MATERIALS MANAGEMENT STRATEGY

Material Requirements Planning
Purchasing
Inventory Control
Material supply Management
Quality Control

Supply Chain – the network of all the individual factors that are involved in the process of sourcing materials
from a supplier by a manufacturer up to the delivery of the finished good to the end users.

Inventory – accounting of items, component parts and raw materials that a company either uses in production
or sells.

Inventory Management Tools

Just-in-time inventory management, Safety stock inventory, FIFO and LIFO, Drop Shipping, Cross-
docking, Bulk Shipments

Why manage these areas? Cost Control, Quality, Customer Satisfaction

Capital Asset – an asset with a useful life longer than a year that is not intended for sale in the regular course
of the business's operation.

Desirable production capacity – maximum product output a company can produce using its available
resources over a specified amount of time.

Plant location – location of factories and other business premises is influenced by market proximity, the cost
of transport, access to supplies, the market for skilled labor and external economies of scale.

Timing of investments – investing strategy through which a market participant makes buying or selling
decisions by predicting the price movements of the financial asset in the future

HRM Strategy – a business’s overall plan for managing its human capital to align it with its business activities.

Four Key Areas of HRM Strategy

Talent and Human Capital – it represents the human capital of an organization and is crucial
to the success of that business. It is an important asset that the business should strive to maintain.

Leadership of an Organization – the HRM department plays a key role in the leadership of
the organization because it is tasked with finding the best executives to steer the business in the right
direction.

Human Resources Planning – HRM department plays an important role in helping the
business to plan for the future.

Performance Metrics and Corporate Culture – an organization with welldefined performance

metrics is an organization with a high potential for success.
HRM Strategy Models

The Standard Causal Model – The model is derived from many similar models published throughout
the 90s and early 2000s. The model shows a causal chain that starts with the business strategy and ends,
through the HR processes, with (improved) financial performance

The 8-box model by Paul Boselie – The 8-box model shows different external and internal factors
that influence the effectiveness of what we do in HR.

The HR value chain – The HR value chain is one of the best-known models in HR. It is based on the
work of Paauwe and Richardson (1997) and creates a nuance in the models above regarding how HR
operates

The Harvard Model – The Harvard HRM model is a comprehensive approach to HR management
designed and developed by the Harvard Business School. This model helps organizations effectively manage
and apply people resources in the most efficient way possible.