Economics For Managers
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Chapter 10 : Forecasting And Decision-Making
Economic Forecasting
Demand Forecasting
Expert Opinion
Survey
Market Experiment
Time Series Analysis
Barometric Analysis
Risk And Decision-Making
Risk and Uncertainty
Risk and Decision-making
Uncertainty and Decision-making
Capital Budgeting
Capital Budgeting Process
Evaluation of Projects
Chapter Summary
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Forecasting plays a major role in decision making because
forecasts are useful in improving the efficiency of the decision-making process.
Businessmen use various qualitative and quantitative demand forecasting
techniques to predict future demand for products and accordingly take business
decisions. Qualitative techniques include expert opinion, survey and market
experiments, whereas quantitative techniques include time series analysis and
barometric method.
Businessmen can understand the changes taking place in the economy in a better
fashion by undertaking economic forecasting. Risk and uncertainty are the two
major components of the business decision-making process. Risk is a condition
where the businessman can measure the possible outcomes and losses arising from
a certain decision. However, uncertainty arises when the risk involved in
decision-making cannot be calculated by businessmen. |
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Nevertheless, businessmen attempt to reduce the
risk involved in such conditions (uncertain conditions) by using
certain quantitative methods such as maximax criterion, maximin
criterion, minimax criterion, Laplace criterion, etc.
Since huge investment decisions have to be made by businessmen,
decision making should be done with utmost care because such
decisions are irreversible. Companies therefore use capital
budgeting as a tool to effectively plan and control such huge
investment decisions.
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Short Case Studies / Caselets