Question

An organization faces several internal and external risks in economic decision, such as high competition, failure of technology, labor unrest, inflation, recession, and change in government laws.Therefore, most of the business decisions of an organization are made under the conditions of risk and uncertainty.An organization can lessen the adverse effects of risks by determining the demand or sales prospects for its products and services in future. Demand forecasting is a systematic process that involves anticipating the demand for the product and services of an organization in future under a set of uncontrollable and competitive forces.

Question 01: In your opinion, explain with examples how Economic Decision analysis is important in Demand Forecasting and cost.

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Note: Please give a good answer at least 1000 words with good headings and please do not copy paste from internet

Answer 1

Answer: In the era of globalisation the environment in which a company operate has multiple dimensions.The main components of environment are the legal, social ,political , technological ,and economic environments. We can take an example of Apple inc a multinational company which is operating under the above sub components of the environment but it has to face them as multi -dimensional because it is operating worldwide with different legal laws and socila conditions as well as political set up . For a company like Apple if there is a new law stating for example restricting the supply of mobile in the country as are measure to protect the domestic mobile manufaturers than that will impact the revenue of Apple Iphone in the perticuler country.

The decision making is a cognative process which involves understanding the problem examining alternative course of actions through analysis and taking a decision to take an alternate based on the above analysis.Simalrly economic decision analysis works on certain microeconomical parameters like demand,cost,supply,Productivity ,consumer behaviour, Utility markets etc.The is great amount of risks a company faces in today's time the risk can be internal or external as the internal risks are related to mainly the operations as for example break -down due to inefficient power supply, low productivity of workers a technological glitch.External risk are beyond the control of the management of a country like new law taken out by the goverment to protect the environment , outbreak of a war , falldown of goverment.Hence there is a condition of risk and uncertainity that is always present infront of a country. The best way is to device a robust forcasting mechanism to mitigate the uncertainity and risk. Here forcasting means carefully predicting the future sales and cost by the analysis of the impact of change in the environment varibles which can trigger the internal as well as the external risk and widen the scope of uncertainity. It is very important to understand that business forcasts is done on the basis of environment scanning and on the basis of facts related to the past as well as the prediction regarding the course of events that can take place in future. For example Apple inc after launching the iphone was prepared that there will be a huge demand in comming time so they worked on forcasting technique and produce iphone in the same quantity. After some time the company knows that there will be more competition comming soon , as according to the forcaste and keeping in mind the technological risks the company upgraded the version of the iphone with new features.The economic decision analysis as understood is related to monetary terms hence it takes into account the microeconomical factors such as demand ,cost,supply,consumer behaviour,markets.The following are the ways in which the economical decision analysis is important for demand forcasting and cost prediction first.

It focuses on goals as the goal of economics is related to the efficient utilisation of resources , which are limited and using them for production to generate revenue with minimum cost and providing satisfaction to the customers hence a firm like Apple sets goals on the basis of these goals they do analysis and on the basis of the analysis they take decisions and perform the forcasts for demand and costs.Economic decision analysis secondly helps in forcasting of demand as information for the economic analysis is very relevant in terms of markets , consumer behaviour Cost, Utility , Purchasing power parity that helps in accurate business forcasting.Thirdly through supply and demand pattern of firm and industry and the demand and supply curve of the company an equilibrium price is determined along with cost from short run curves hence it helps in evaluating the alternatives and help in forcasting the benifits these alternatives will give to raise the demand and lower the cost.The rest is the work of implementation and control and final is the review. Fourthly. Economic decision analysis helps in providing relevent information inorder to make a more correct forcast of demand and cost we can take the example of the consumer preference and utility which a smart phone has and perform a statistical inference study in which hypothesis is tested and relevent results is obtain which provide sound basis for forcasting demand of iphone in this case. Fifthly they provide timely data as studies are done in strict time frame with very high accuracy . Those companies which do not perform efficient forcaste are more likely to stay behind in the race of profitability. Here if we go into the deep of the economic analysis the main techniques are the Sampling , Economic modeling like Economic order Quanty or ABC control techniquines few other are related to game theory which helps in finding out the output of a game or the possible output of the competitor with a rice in price , the economic decision making analysis also uses techniques like decision tree , PERT technique which is programme evaluation and review technique which helps in finding out the best cource of action based on probability , Capital budgeting is also an important tool of economic decision analysis as it helps to find out the net present value of a project as well as the profitability and pay back period which provide ground for the forcasting for cost .The concept of market in the economic decision analysis states the and help to know the monopoly status of a good or services and can be helped to evaluate the cost as well as benifit to enter the market which will provide the basis for the forcasting of the demand and cost we can take the example of Apple company when it enters the smart phone market it has done carefull economic decision analysis of the mobile market at that point of time as it was mainly normal phones with the major share was with Nokia and Motorola so it has deviced a forcaste basis on the analysis to overrun the competition by introducing a smart phone like iphone.

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