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Environmental Analysis and Forecasting

Posted by vigneshr ~ Posted Sat, 05/23/2009 - 15:52

Environmental Analysis and forecasting

MEANING OF ENVIRONMENTAL ANALYSIS

Environment : It refers to all external forces which have the bearing on the functioning of
BUSINESS.

Analysis : It refers to detailed study or examination of something in order to understand

more about it.

Environmental Analysis : Scrutinizing of the external forces which have the bearing on the
functioning of the BUSINESS.

WHY ENVIRONMENTAL ANALYSIS ?

Analysis of the Environment makes the Business aware of the Threats & Opportunities in
the environment.

Then in the light of it’s Strengths & Weaknesses, the business chalks out courses/courses of
actions in order to Lessen the impact of Threats and grab the Opportunities.
 Stages of Environmental Analysis

• SCANNING

• MONITORING

• FORECASTING

• ASSESSING

SCANNING: It is the process of analyzing the environment.Identification of

emerging/ensuing trends is a critical purpose of environmental scanning. The main aim of
environmental scanning is alerting the organization to potentially significant external
impingement before it has fully formed or crystallized.
Successful environmental scanning draws attention to possible changes and events before
their occurrence , allowing time for suitable action.

MONITORING : It entails perspective followup and a more indepth analysis of the

relevant environmental trends identified at the scanning stage. The purpose of monitoring is
to assemble sufficient data to discern(makeout) whether certain patterns are emerging.
The outputs of monitoring are threefold :
1. a specific description of environmental patterns to be forecast;
2. identification of trends for further monitoring;
3. identification of patterns requiring further scanning.

FORECASTING : Forecasting is concerned with the development of plausible directions of

directions, scope, speed and intensity of environmental change to layout the evolutionary
path of anticipatory change.

ASSESSMENT : Assessment involves drawing up implications/ possible impacts. In

assessment, the frame of reference moves from understanding the environment –of the focus
of Scanning, Monitoring and Forecasting-to indentifying what that understanding of
environment means for the organization.
In short, It involves drawing of possible impacts of the environmental changes on the
organization.

APPROACHES TO ENVIRONMENTAL ANALYSIS

There are broadly two approaches to Environmental Analysis :
1. Outside-in (macro) approach
2. Inside –out (micro) approach

Outside-in (Macro) approach : This approach takes the very broad view of the business
environment., with a long term perspective and develops alternative scenarios of the future. The
implications of the alternative scenarios for the industry and the organization are drawn up with
reference to the different scenarios.
“A scenario is a detailed description of how certain events may occur in the future and their
consequences for the organization”.

Inside-out (Micro) approach: It takes a rather narrow view of the environment, forecasts the
immediate future environment on the basis of ongoing environmental monitoring and derives the
implications of it for the industry and firm out of it.

Techniques of Environmental Analysis

TYPES OF FORECASTING :
1. Economic Forecast
2. Social Forecast
3. Political Forecast
4. Technological Forecast
 Economic Forecast : As a economic environment is a very critical determinant of business
prospects, economic forecasts is very important.
The Economic factors considered include general economic conditions, GDP growth rate, per
capita income, structural changes in GDP, Investment and output trends in different sectors and
subsectors/industries, price trends, trade and BOP trends etc.

Social Forecast : Social trends have significant implications for business strategy. It is,
therefore , very essential to forecast the possible changes in the relevant social variables.Important
factors include :
1. Population growth/decline
2. Ethnic composition
3. Life Styles
4. Social attitudes
5. Income levels

Political Forecasts : Political forecast has an important part in envisioning properly the future
scenario of business. Relevant factors include :
1. Changes in the Relative power of Political party.
2. Political alliances and political ideologies etc.

Political forecasts also cover industrial policy, commercial policy, and Fiscal policy,
International political developments are also important.

Technological Forecast : Innovation and other technological developments can drastically alter the
business environment.Technological forecasts, therefore , assumes great significance.
It encompass not only technological innovations but also the pace nd extent of diffusion and
penetration of technologies and their implications.

Steps in Environmental Forecasting

The following are the steps in Environmental Analysis:

1. Identification of relevant environmental variables
2. Collection of Information
3. Selection of Forecasting Technique
 4. Monitoring

Techniques for Environmental Forecasting

Techniques can be classified under two heads:

1. Quantitative
2. Qualitative

Quantitative : It can be numberized i.e under this technique numerical data is used. The following are the
quantitative techniques :
1. Ecometric Technique : It involves casual models to predict major economic indicators.
When there is a well established relationship between two or more variables, that casual
relationship can be used to forecast future.
For example : If demand is a function of consumer income, the impact of an increase in consumer
income on demand can be predicted using the equation representing the relationship between these two
variables.

b. Trend Extrapolation : Time series models assume that the past is a prologue to the future and
extrapolate the historical data to the future. We can say future is viewed in the light of
past under this technique

Qualitative Technique: Under this technique numerical datas are not used. The following are the
methods of qualitative technique

1. Brain Storming: Brian Storming is a creative method of generating ideas and forecasts. Under this
method, a group of knowledgeable people are encouraged to generate ideas, discuss and to make forecasts
on the basis of that.

Step1. Generation of Ideas

Step2. Discussion on the generated ideas

Step3. Forecast on the basis of discussion

It is popular technique for technological forecasting.

3. Delphi Method: It’s similar to brainstorming but it’s a more systematic technique. This
method uses a panel of expertss on the subject whom opinions are gathered by using semi
structured questionaire and/or interview. The opinions gathered are circulated among
panel members for their evaluation and comments and then the experts are requested to
review their opinion in the light feedback.

Review in the Light of Feedback

4. Strategic Issue Analysis: It’s used for expressing strategic environment issues. It
consists of systematically monitoring of social, regulatory and political changes that can
affect corporate performance and identifying their impact on the company.

Benefits of Environmental Analysis

• The very idea of environmental analysis makes one aware of the environment-
organization linkage.

• It helps an organization to identify present and future threats and opportunities.

 • It helps to understand the transformation of the industry environment.

• It contributes in identification of risks.

• It helps in formulation of strategies.

• It keeps the manger informed, alert and dynamic.

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