Forecasting and Decision Making - Coursework Example

Order 179618    Forecasting and Decision Making Introduction This paper seeks to discuss the ment: "For a business to succeed, it is important to understand the interdependence between key departments such as finance, marketing, HR and production and to be able to co-ordinate the activities of these functions against a constantly changing marketing environment." Based on experience on the Simco Business simulation (on attached file -Protect) and paying particular attention to the importance of effective forecasting within the process. Succeeding in business requires a basic but sound understanding on an organization. Since an organization is just like an a living organism to have parts that functions, said parts which are called the departments or functional parts must perform their functions together although each requiring some independence in order to attain the mission and visions of the organization which are translates into SMART objectives. SMART stands for specific, measurable, attainable, realistic and time-bound. Hence there is basis to accede to the statement that "For a business to succeed, it is important to understand the interdependence between key departments such as finance, marketing, HR and production and to be able to co-ordinate the activities of these functions against a constantly changing marketing environment." In the following paragraphs I would be critically assessing this statement using the example of SIMCO business simulation. 2. Analysis and Discussion: 2.1. Define finance, marketing, HR and production and MIS/Accounting functions Finance is the management function which is interested in maximising the value of the company. The attain the same; the financial manager must be able to define value to the company. He or she must understand that management need to satisfy the requirements of the present stockholders that they must at earn from their investment in the company’s stock by being assured of higher value of stocks. Marketing function concern itself with the Four Ps’ of Marketing. Management must set a competitive price so that customers must be assured that they are paying for value. Management can accomplish this if the company can attain competitive advantage over competitors. Production is management function which in interested to turning customers needs and wants into goods or services and providing for the same at the most efficient and most effective manner at the right place, at the right amount and at the right time. It therefore needs to co-ordinately closely with the marketing department which has direct contact with the customer while working also fully well with the maximization of value functions with the finance department. Human Resource (HR) function concerns itself in developing competitive advantage through people. Hence human resource management activities must be geared towards attaining business objective. Since human resource management demands the best from people all the processes leading to having performed their functions requires the best management skill. The activities of recruitment, selection, continuous employee improvement and training should be done using the best practices in the industry in coordination with finance and other functions in attaining the corporate objectives Accounting function which actually aims to provide reliable and complete information must be able to perform independently with finance but perform the function in an objective manner in the same that it deals and coordinates with other departments or functions. 2.2 Application of the principles of coordination among functional areas or departments in the case of SIMCO 2.2.1 Functional Strategies must be prepared after from corporate strategies which are based on external analysis of the industry. Simco thrives in environment where there is competition that is intensive. Case facts provide that Simco manufactures and sells alarm equipment in the UK and over the past few years has been faced with increasing competition among manufacturers of traditional alarms systems based on microwave and ultrasonic technology. Such competition has resulted to lower profit margins and reduced sales. The company has reacted indeed by looking for new products and new markets to increase sales and also profits. Under this given scenario the corporate strategy (Cooper, 2000; Churchill, Jr. and Peter, 1995; Kotler, 1994) is going into new markets using new products. Since this strategy is believe to help the company to meet its corporate objectives. Its basis of saying that company has been suffering its reduced sales and lower profit margin is determined by comparing actual and its target financial objectives. Although in meeting this challenge is basically a financial strategy, such cannot do it alone because all the other areas must coordinate and help each other. 2.2.2 Functional Areas of Management must coordinate to attain goals An organization like that of Simco has functional areas which work together. As told earlier that management of Simco has decided the new technology to produce new products for its new markets, the financial management must translate this new objective into SMART ones. For example finance must be convinced that the decision to go for production is the better alternative in terms of its cost of Capital. Case facts provide that board of directors has set up a new company and has issued ordinary shares with nominal value of £ 1 per share and they have bought a new factory with lots of room for expansion. Now these decisions presuppose a financial management to have been decided. In other words, at this point, this paper could only assume that management was correct in so deciding to pursue the project in terms of managed opportunity costs and hence corporate value is assumed to be maximized also. With finance having done its function of acting on the decision to pursue production of new products under the new technology, marketing function has also an indispensable rule to play that products coming out of the production must have been based on market research where results of study must be confirmatory of high demand for companies products at least over a calculated or estimated periods of time. As to how marketing has done its function, may be tested using the Four P’s marketing and these are: – Price, Product, Promotion, and Place. The marketing managers will now have to make adjustment for each of these components to have a good mix that will give the company the competitive advantage over its competitors. The product refers to the package of goods and services given to the customer, hence the marketer must make best thing that would address almost anything to please and surprise customers including the appearance, functionality. Product features should also include support or non-tangibles that the customer will receive after sale so that customers will have full satisfaction that wills loyalty and patronage over many periods to come. Place is the where and how of product is distribution. Will the company it by itself, or will it need a broker, or a distributor? Will it need more networks as to have retailers or should its sell only through delivery by persons or through the internet or telephone? Simco will have to address this question if it wants to maximize its sales that would give the needed profits as expected by the finance department when it has required the preparation of forecasted figures based on options backed quantitatively in terms of quantity of product as well at its price. Thus the other P as will be discuss next is the price as marketing function. Price therefore is how much the company for one’s product or service. Simco in the case of its new product should decide whether it sell the produce or service for the same amount all of the time or should it allow some differentiation. Theory and practice normally allow varying pricing and this could occur according on the basis of geography, time frame, or volume according to level of service. As to how the company will package the price is not just a logical decision but also a psychological decision that will have to understand the behaviour of people, thus to reach a big volume of prospective customer to sell its product, Simco need to apply the promotion, which is actually the fourth P. Promotion therefore is the advertising and selling part of Marketing and they could be categorized into push versus pull. Advertising pulls is accomplished by informing the consumer about limited edition of quantity of the product or service, thereby creating a big price to for people who will value uniqueness of the chance to have only that limited edition. Sometime the company could just used incentives, in the form of premiums or price reductions. This last part is the so called advertising push because the company is virtually pushing the product out the door of its place of selling its product by encouraging it customers to buy in volume, more, than what normally would otherwise be purchased by customers. In the case of Simco, because the products would be new, the company may use pricing strategy where there seems to be lack of enough quantity or limited edition at the start to have good prices for its products. Along the process of making 4 P’s of marketing Simco need to have motivated employees that will have joint efforts to produce the needed result to accomplish it objective of high sales and profits (Bernstein,1993; Brigham and Houston, 2002; Helfert, 1994). This is where the need for good and effective human resource (HR) management comes in. HR management therefore concerns itself with motivating and moving people to be at their best and this included paying them the right way and on time , training them , giving them the need support , providing other benefits that would assure them their life employment including promising some benefits after employment. These things are not easy to do if there not good information about people in the organization including an inventory of their talents, their background and their skill or any that a human person could do for the benefit of the organization. Thus the relevance of the management information system or accounting information to have ready and reliable information for purposes of making the necessary, timely and effective decisions for the company 2.2.3 Options from which decisions will be based on simulation and their discussions. Options in the company vary and they will just have to be defined very clearly and those that would require fulfilment of the corporate objectives should be given priority. In the case of Simco, it must produce the level of activity that would give the highest profits as much as possible. It is a fact that among the different production options, the company would be incurring product cost and other operating cost which could be variable and fixed cost. Fixed cost will remain regardless of the level of production while variable cost will vary according to the level of production. Given this model, Simco should make the best combination to attain the objective of maximum profit that will reach its profits objectives as defined by the finance department. From the graphs below on could clearly see the simulated results of return on capital employed on a per quarter basis This would mean that the quarters which have the most favourable result is the fifth, six and seventh quarters. It could encourage the finance function to ask the marketing department to conduct research on the possibility of increasing volume of outputs during said quarters and if there is basis to sustain the same, production department could be coordinated with in order to take advantage for the high profitability of the quarters that have been influenced by favourable economic conditions during those time. This graph indicates also the first quarter result would not be that favourable, hence managers should be very sparing in unnecessary expense during that period. This graph is an indication for the company to make combinations of its plans to reach it objectives. It must be made clear that forecasting does involve risks since it is looking into the future and that nobody could really be sure about what will happen even in the next minute, yet business operations can keep records and said function is normally done by an efficient MIS or accounting department. The said information would then be used in planning since historical information could be used as basis to forecast the future. Between not having basis and having basis to look at the future, common sense will dictate the using history to forecast the future is never wrong because between two points in time, one could observe a behaviour that could be repeated. What happened in the above graph is the best example of using relevant information to forecast and plan as basis for decision making The other option that may have to be decided by the company is what quarter or quarter should the company increase sales on the basis of gross margin. The following graph would illustrate the quarter where certain gross margin is higher than the others. It would appear that company would earn the highest gross margin for the fifth, sixth and seventh quarters of the period under simulation, hence the various management functions must be informed to adjust to their department goals and help the company the corporate finance objective of first satisfying the owners of the business in terms of higher profits that would normally result to higher stock price or that would increase their wealth. This would keep the company alive al long as the owners will earn higher than their opportunity cost. It must be pointed out that the result of the second graph supports the first graph, hence management must have basis to give emphasis on the fifth, sixth and seventh quarters of the period under simulation. 3. Conclusion: This paper was able to prove about the importance of understanding the interdependence between key departments such as finance, marketing, HR and production and of being able to coordinate the activities of these functions against a constantly changing marketing environment. It was thus seen that in the case of Simco that the need for coordination among the activities is paramount. But just like the part of the human body and organization must have a mission and vision translated into SMART objectives before such activities may focus their energies towards creating an effective forecasting within the process. Marketing must respond to the needs and wants of customers and such needs and wants must have been translated already by the production department in terms readily available products which the customers may buy at right time, right place and right amount. Such translation of needs and wants by the production department must have been prepared beforehand by the finance departs by actually making maximization of value from the best combination or selection of options. From the available production options in terms of materials, labour cost and manufacturing overhead, the production department must have recommended and approve a production plan that would give the greatest value to whole organization in terms of most efficient and most effective production methods. For finance however to do its value maximization function in close coordination with production and marketing department, fit must have to use and rely also on complete and reliable information which the Management information department or the Accounting department must provide. To attain complete and reliable information, the people preparing that information must be conversant and knowledgeable of the rules and principles of correct processing and presentation of information. Such required type of personnel must not only be found in Management information department or Accounting department but in all areas of the organization specially those that are at management level who have a great influence on how the business is going to attain it SMART objectives. References: Bernstein (1993) Financial Statement Analysis, IRWIN, Sydney, Australia Brigham and Houston (2002) Fundamentals of Financial Management, Thomson South-Western, London, UK Churchill, Jr. and Peter (1995) Marketing, Creating Value for Customers, IRWIN, Sydney, Australia Cooper, L. (2000) Strategic marketing planning for radically new products, Journal of Marketing, Vol. 64 Issue 1, pp.1-15. Helfert, Erich (1994), Techniques for Financial Analysis, IRWIN, Sydney, Australia Kotler, P (1994) Marketing Management, Analysis Planning, Implementation and Control, London, UK Read More