European Journal of Scientific Research - EuroJournals

Forecasting as a Strategic Decision-Making Tool: A Review and Discussion with
Emphasis on Marketing Management 422
As already pointed out, information is one of the most valuable strategic tools. Forecasting is a
collection of mostly statistical and/or judgemental procedures 1 , which aim at predicting the future
based on the available information and/or data. In such processes, forecasting has lots of potentials for
strategic level managers including revealing system dynamics, problem determination, predicting,
monitoring, and control. More specifically, forecasting of costs, market share, sales, inventory, cash
flows, dividends, stock prices, and capacity requirements, which are only some of the internal utility
areas, besides interest rates, inflation rates, and growth rates of economy, which are some of the
external utility areas, all are closely related to strategic decision-making in one way or another. The
operation of forecasting function, in this sense, is an inter-departmental activity and, therefore, the
development of forecasts (e.g. sales or market potential) should be done by the inclusion of several
parties (e.g. market research manager, sales manager, and production manager in a company). This is
particularly important for especially if the forecasts are used for strategic (e.g. marketing) planning,
integration, and realisation of those strategic plans.
Integration of forecasting system to management activities is particularly important in utilizing
the potential of forecasting, which has two main dimensions: (i) the production of the desired forecasts
and (ii) putting them into use. As the first one is related to the forecasting function, the second one is
related to the managerial decision processes. As with any other decision tools, a failure in utilizing it
will make it difficult to achieve the desired objectives, especially if a particular decision is heavily
based on the information from the forecasting system such as the decisions regarding manufacturing
capacity planning based on sales forecasts). In a survey of expert opinions on cash flow forecasting in
British companies, Polat [2003] has found the variety of forecasts performed (e.g. sales, costs, revenue,
inventory, capital expenditures, working capital, and other type of forecasts) were mainly for planning
purposes in addition to monitoring and control. Probably, that is why, top-level strategic managers are
closely interested in many aspects of forecasting activities in British companies. Another important
finding of the study from the strategic management point of view was that the people who were
interested in and who directly or indirectly undertook the forecasting task were mostly, in 8 of the 10
companies, top-level managers including chief executive officer (CEO), finance directors, and
financial controllers, which indicates the relevance of forecasting to strategic decision-making. The
study also pointed out the multi-purpose character of forecasting, which supports this idea. The
potential uses of forecasting in strategic decision processes can be stated as follows:
Goal Setting: Strategic planning requires input and the forecasting system in a company provides the
underlying input necessary for the underlying process. Strategic managers can base their plans on these
inputs in determining more realistic and attainable goals. In other words, forecasts can be taken as
benchmarks for determining what are (are not) possible and achievable in a managerial decision
context.
Firm Performance: The information produced by the forecasting system is ready-to-use material for
measuring the firm performance whether the predetermined strategic goals are achieved. That is, the
forecasting plays or can be used as a performance evaluation and a monitoring device in assessing the
success of strategic plans. Assume that the company X forecasted its market share to be 25% in a 3
years time and determined all its strategies to attain this market share. At the end of the 3 years period,
the strategic management could easily use market share forecast as a benchmark for evaluating to what
extent it achieved its objectives or how well it performed during these last 3 years, so that it can
calibrate its strategies.
Strategy Formulation: Strategy formulation is one of the key processes in strategic management.
Broad range of forecasting processes provides with company managers the relevant information from
procedural and analytical designs so that the outcomes from various scenarios can be investigated and
1 These processes may include the activities such as data collection, data pre-processing and preliminary data analysis,
forecasting method selection, which also involves model selection, model fitting, and diagnostic checking, and control in
a forecasting system in use.