SWOT analysis (alternatively SWOT matrix) is an acronym for strengths, weaknesses, opportunities, and threats and is a

structured planning method that evaluates those four elements of a project or business venture. A SWOT analysis can be carried out
for a company, product, place, industry, or person. It involves specifying the objective of the business venture or project and
identifying the internal and external factors that are favorable and unfavorable to achieve that objective. Some authors credit SWOT
to Albert Humphrey, who led a convention at the Stanford Research Institute (now SRI International) in the 1960s and 1970s using
data from Fortune 500 companies.[1][2] However, Humphrey himself did not claim the creation of SWOT, and the origins remain
obscure. The degree to which the internal environment of the firm matches with the external environment is expressed by the
concept of strategic fit.

Strengths: characteristics of the business or project that give it an advantage over others

Weaknesses: characteristics of the business that place the business or project at a disadvantage relative to others

Opportunities: elements in the environment that the business or project could exploit to its advantage

Threats: elements in the environment that could cause trouble for the business or project

Identification of SWOTs is important because they can inform later steps in planning to achieve the objective. First, decisionmakers should consider whether the objective is attainable, given the SWOTs. If the objective is not attainable, they must
select a different objective and repeat the process.
Users of SWOT analysis must ask and answer questions that generate meaningful information for each category (strengths,
weaknesses, opportunities, and threats) to make the analysis useful and find their competitive advantage.

Example
A start-up small consultancy business might draw up the following SWOT
Analysis:

Strengths

We are able to respond very quickly as we have no red tape,

and no need for higher management approval.

We are able to give really good customer care, as the current

small amount of work means we have plenty of time to devote to
customers.

Our lead consultant has strong reputation in the market.

We can change direction quickly if we find that our marketing is
not working.

We have low overheads, so we can offer good value to

customers.

Weaknesses

Our company has little market presence or reputation.

We have a small staff, with a shallow skills base in many areas.

We are vulnerable to vital staff being sick, and leaving.

Our cash flow will be unreliable in the early stages.

Opportunities

Our business sector is expanding, with many future

opportunities for success.

Local government wants to encourage local businesses.

Our competitors may be slow to adopt new technologies.

Threats

Developments in technology may change this market beyond

our ability to adapt.

A small change in the focus of a large competitor might wipe

out any market position we achieve.

As a result of their analysis, the consultancy may decide to specialize in rapid

response, good value services to local businesses and local government.
Marketing would be in selected local publications to get the greatest possible
market presence for a set advertising budget, and the consultancy should
keep up-to-date with changes in technology where possible.

Key Points

SWOT Analysis is a simple but useful framework for

analyzing your organization's strengths and weaknesses,
and the opportunities and threats that you face. It helps
you focus on your strengths, minimize threats, and take the
greatest possible advantage of opportunities available to
you.
It can be used to "kick off" strategy formulation, or in a
more sophisticated way as a serious strategy tool. You can
also use it to get an understanding of your competitors,
which can give you the insights you need to craft a
coherent and successful competitive position.
When carrying out your analysis, be realistic and rigorous.
Apply it at the right level, and supplement it with other
option-generation tools where appropriate.

Steps in Strategy Formulation Process

Strategy formulation refers to the process of choosing the most appropriate course of action for the realization of organizational goals and
objectives and thereby achieving the organizational vision. The process of strategy formulation basically involves six main steps.
Though these steps do not follow a rigid chronological order, however they are very rational and can be easily followed in this order.
1.

Setting Organizations objectives - The key component of any strategy statement is to set the long-term objectives of the
organization. It is known that strategy is generally a medium for realization of organizational objectives. Objectives stress the state
of being there whereas Strategy stresses upon the process of reaching there. Strategy includes both the fixation of objectives as
well the medium to be used to realize those objectives. Thus, strategy is a wider term which believes in the manner of deployment
of resources so as to achieve the objectives.
While fixing the organizational objectives, it is essential that the factors which influence the selection of objectives must be
analyzed before the selection of objectives. Once the objectives and the factors influencing strategic decisions have been
determined, it is easy to take strategic decisions.

2.

Evaluating the Organizational Environment - The next step is to evaluate the general economic and industrial environment in
which the organization operates. This includes a review of the organizations competitive position. It is essential to conduct a
qualitative and quantitative review of an organizations existing product line. The purpose of such a review is to make sure that the
factors important for competitive success in the market can be discovered so that the management can identify their own
strengths and weaknesses as well as their competitors strengths and weaknesses.
After identifying its strengths and weaknesses, an organization must keep a track of competitors moves and actions so as to
discover probable opportunities of threats to its market or supply sources.

3.

Setting Quantitative Targets - In this step, an organization must practically fix the quantitative target values for some of the
organizational objectives. The idea behind this is to compare with long term customers, so as to evaluate the contribution that
might be made by various product zones or operating departments.

4.

Aiming in context with the divisional plans - In this step, the contributions made by each department or division or product
category within the organization is identified and accordingly strategic planning is done for each sub-unit. This requires a careful
analysis of macroeconomic trends.

5.

Performance Analysis - Performance analysis includes discovering and analyzing the gap between the planned or desired
performance. A critical evaluation of the organizations past performance, present condition and the desired future conditions must
be done by the organization. This critical evaluation identifies the degree of gap that persists between the actual reality and the
long-term aspirations of the organization. An attempt is made by the organization to estimate its probable future condition if the
current trends persist.

6.

Choice of Strategy - This is the ultimate step in Strategy Formulation. The best course of action is actually chosen after
considering organizational goals, organizational strengths, potential and limitations as well as the external opportunities.

Crisis Management - Meaning, Need and its

Features
What is Crisis ?

A sudden and unexpected event leading to major unrest amongst the individuals at the workplace is called as organization crisis.
In other words, crisis is defined as any emergency situation which disturbs the employees as well as leads to instability in the organization.
Crisis affects an individual, group, organization or society on the whole.

Characteristics of Crisis

Crisis is a sequence of sudden disturbing events harming the organization.

Crisis generally arises on a short notice.

Crisis triggers a feeling of fear and threat amongst the individuals.

Why Crisis ?
Crisis can arise in an organization due to any of the following reasons:

Technological failure and Breakdown of machines lead to crisis. Problems in internet, corruption in the software, errors in
passwords all result in crisis.

Crisis arises when employees do not agree to each other and fight amongst themselves. Crisis arises as a result of boycott,
strikes for indefinite periods, disputes and so on.

Violence, thefts and terrorism at the workplace result in organization crisis.

Neglecting minor issues in the beginning can lead to major crisis and a situation of uncertainty at the work place. The
management must have complete control on its employees and should not adopt a casual attitude at work.

Illegal behaviors such as accepting bribes, frauds, data or information tampering all lead to organization crisis.

Crisis arises when organization fails to pay its creditors and declares itself a bankrupt organization.

Crisis Management

The art of dealing with sudden and unexpected events which disturbs the employees, organization as well as external clients
refers to Crisis Management.
The process of handling unexpected and sudden changes in organization culture is called as crisis management.

Need for Crisis Management

Crisis Management prepares the individuals to face unexpected developments and adverse conditions in the organization with
courage and determination.

Employees adjust well to the sudden changes in the organization.

Employees can understand and analyze the causes of crisis and cope with it in the best possible way.

Crisis Management helps the managers to devise strategies to come out of uncertain conditions and also decide on the future
course of action.

Crisis Management helps the managers to feel the early signs of crisis, warn the employees against the aftermaths and take
necessary precautions for the same.

Essential Features of Crisis Management

Crisis Management includes activities and processes which help the managers as well as employees to analyze and understand
events which might lead to crisis and uncertainty in the organization.

Crisis Management enables the managers and employees to respond effectively to changes in the organization culture.

It consists of effective coordination amongst the departments to overcome emergency situations.

Employees at the time of crisis must communicate effectively with each other and try their level best to overcome tough times.
Points to keep in mind during crisis

Dont panic or spread rumours around. Be patient.

At the time of crisis the management should be in regular touch with the employees, external clients, stake holders as well as
media.

Avoid being too rigid. One should adapt well to changes and new situations.

Types of Crisis
Crisis refers to sudden unplanned events which cause major disturbances in the organization and trigger a feeling of fear and threat amongst
the employees.
Following are the types of crisis:

1. Natural Crisis

Disturbances in the environment and nature lead to natural crisis.

Such events are generally beyond the control of human beings.

Tornadoes, Earthquakes, Hurricanes, Landslides, Tsunamis, Flood, Drought all result in natural disaster.

2. Technological Crisis

Technological crisis arises as a result of failure in technology. Problems in the overall systems lead to technological
crisis.

Breakdown of machine, corrupted software and so on give rise to technological crisis.

3. Confrontation Crisis

Confrontation crises arise when employees fight amongst themselves. Individuals do not agree to each other and
eventually depend on non productive acts like boycotts, strikes for indefinite periods and so on.

In such a type of crisis, employees disobey superiors; give them ultimatums and force them to accept their demands.

Internal disputes, ineffective communication and lack of coordination give rise to confrontation crisis.

4. Crisis of Malevolence

Organizations face crisis of malevolence when some notorious employees take the help of criminal activities and
extreme steps to fulfill their demands.

Acts like kidnapping companys officials, false rumours all lead to crisis of malevolence.

5. Crisis of Organizational Misdeeds

Crises of organizational misdeeds arise when management takes certain decisions knowing the harmful consequences
of the same towards the stakeholders and external parties.

In such cases, superiors ignore the after effects of strategies and implement the same for quick results.

Crisis of organizational misdeeds can be further classified into following three types:

i.

Crisis of Skewed Management Values

ii.

iii.

Crisis of Deception

Organizations face crisis of deception when management purposely tampers data and information.

Management makes fake promises and wrong commitments to the customers. Communicating wrong
information about the organization and products lead to crisis of deception.

Crisis of Management Misconduct

Crisis of Skewed Management Values arises when management supports short term growth and ignores
broader issues.

Organizations face crisis of management misconduct when management indulges in deliberate acts of
illegality like accepting bribes, passing on confidential information and so on.

Crisis due to Workplace Violence

Such a type of crisis arises when employees are indulged in violent acts such as beating employees, superiors in the
office premises itself.

Crisis Due to Rumours

Bankruptcy

A crisis also arises when organizations fail to pay its creditors and other parties.

Lack of fund leads to crisis.

Crisis Due to Natural Factors

Spreading false rumours about the organization and brand lead to crisis. Employees must not spread anything which
would tarnish the image of their organization.

Disturbances in environment and nature such as hurricanes, volcanoes, storms, flood; droughts, earthquakes etc result
in crisis.

Sudden Crisis

As the name suggests, such situations arise all of a sudden and on an extremely short notice.

Managers do not get warning signals and such a situation is in most cases beyond any ones control.

Smoldering Crisis

Neglecting minor issues in the beginning lead to smoldering crisis later.

Managers often can foresee crisis but they should not ignore the same and wait for someone else to take action.

Warn the employees immediately to avoid such a situation.

Crisis Management Model

Crisis refer to unplanned events which cause harm to the organization and lead to disturbances and major unrest amongst the employees.
Crisis gives rise to a feeling of fear and threat in the individuals who eventually lose interest and trust in the organization.

Crisis Management Model

Gonzalez-Herrero and Pratt proposed a Crisis Management Model which identified three different stages of crisis management.
According to Gonzalez-Herrero and Pratt, crisis management includes following three stages:

1. Diagnosis of Crisis
The first stage involves detecting the early indicators of crisis. It is for the leaders and managers to sense the warning signals of a
crisis and prepare the employees to face the same with courage and determination. Superiors must review the performance of
their subordinates from time to time to know what they are up to.
The role of a manager is not just to sit in closed cabins and shout on his subordinates. He must know what is happening around
him. Monitoring the performance of the employee regularly helps the managers to foresee crisis and warn the employees
against the negative consequences of the same. One should not ignore the alarming signals of crisis but take necessary
actions to prevent it. Take initiative on your own. Dont wait for others.

2. Planning
Once a crisis is being detected, crisis management team must immediately jump into action. Ask the employees not to panic.
Devise relevant strategies to avoid an emergency situation. Sit and discuss with the related members to come out with a solution
which would work best at the times of crisis. It is essential to take quick decisions. One needs to be alert and most importantly
patient. Make sure your facts and figures are correct. Dont rely on mere guess works and assumptions. It will cost you later.

3. Adjusting to Changes
Employees must adjust well to new situations and changes for effective functioning of organization in near future. It is important to
analyze the causes which led to a crisis at the workplace. Mistakes should not be repeated and new plans and processes must be
incorporated in the system.

Structural Functions Systems Theory

According to structural functions systems theory, communication plays a pivotal role in crisis management. Correct flow of information
across all hierarchies is essential. Transparency must be maintained at all levels. Management must effectively communicate with
employees and provide them the necessary information at the times of crisis. Ignoring people does not help, instead makes situations worse.
Superiors must be in regular touch with subordinates. Leaders must take charge and ask the employees to give their best.

Diffusion of innovation Theory

Diffusion of innovation theory proposed by Everett Rogers, supports the sharing of information during emergency situations. As the
name suggests during crisis each employee should think out of the box and come out with something innovative to overcome tough times.
One should be ready with an alternate plan. Once an employee comes up with an innovative idea, he must not keep things to himself.
Spread the idea amongst all employees and departments. Effective communication is essential to pass on ideas and information in its
desired form.

Unequal Human Capital Theory

Unequal human capital theory was proposed by James. According to unequal human capital theory, inequality amongst employees leads
to crisis at the workplace. Discrimation on the grounds of caste, job profile as well as salary lead to frustrated employees who eventually play
with the brand name, spread baseless rumors and earn a bad name for the organization.

Crisis Management Plan

Crisis refers to a sequence of unwanted events leading to major disturbances and uncertainty at the workplace.
Crisis is an unexpected event which not only causes harm to the organization but also triggers a feeling of fear and insecurity amongst the
individuals.
Organizations must be prepared well to face inevitable threats and come out of tough times without much difficulty. Individuals must
immediately jump into action; the moment crisis is being detected at the workplace.

What is a Crisis Management Plan ?

Individuals need to adopt a step by step approach during critical situations. Planning is essential. Getting hyper does not solve any problem,
instead makes the situation worse. It is a crime to take impulsive and hasty decisions during crisis. It is essential to think rationally and devise
strategies which would work best during emergency situations. Complaining and cribbing lead you nowhere.
Crisis Management Plan refers to a detailed plan which describes the various actions which need to be taken during critical
situations or crisis.
Any plan prepared by superiors, members of crisis management team and related employees to help organization overcome crisis in the
best possible way is called crisis management plan.

Why Crisis Management Plan ?

Crisis management plan helps the employees to adopt a focused approach during emergency situations.

Crisis management Plan elaborates the actions to be taken by the management as well as the employees to save organizations
reputation and standing in the industry. It gives a detailed overview of the roles and responsibilities of employees during
crisis.

Individuals representing the crisis management team formulate crisis management plan to reduce the after effects of crisis at
the workplace.

Crisis Management Plan helps the managers and superiors to take quick and relevant actions as per the situation.

Crisis Management plan protects an organization from inevitable threats and also makes its future secure.

Such plans reduce instability and uncertainty amongst the employees and help them concentrate on their work.

Characteristics of Crisis Management Plan

Crisis Management Plan should be made in the presence of all executives. Every member of crisis management team should
have a say in the plan. It is important for each one to give his / her valuable inputs and suggestions.

Crisis Management Plan should take into account all identified problem areas and suggest a possible solution for all of them to
help the organization come out of crisis as soon as possible.

Make sure the plans are realistic and solve the purpose of saving organizations reputation and name.

How to make a crisis management plan ?

Identify the problem areas and various factors which led to crisis at the workplace.

Discuss issues and areas of concern amongst yourselves on an open forum for everyone to share their opinion.

Make sure you have accurate information. Dont depend on guess works and assumptions. Double check your information before
submitting the final plan.

Crisis Management Plan should not only focus on ways to overcome crisis but also on making the processes foolproof to avoid
emergency situations in future.

Crisis Communication - Meaning, Need and its

Process
Crisis refers to sequence of unwanted events at the workplace which lead to disturbances and major unrest amongst the individuals. Crisis
generally arises on a short notice and triggers a feeling of threat and fear in the employees. In simpler words crisis leads to uncertainty and
causes major harm to the organization and its employees.
It is essential for the employees to sense the early signs of crisis and warn the employees against the negative consequences of the same.
Crisis not only affects the smooth functioning of the organization but also pose a threat to its brand name.

What is Crisis Communication ?

Crisis Communication refers to a special wing which deals with the reputation of the individuals as well as the organization.Crisis
communication is an initiative which aims at protecting the reputation of the organization and maintaining its public image. Various
factors such as criminal attacks, government investigations, media enquiry can tarnish the image of an organization.
Crisis Communication specialists fight against several challenges which tend to harm the reputation and image of the organization.

Need for Crisis Communication

Crisis can have a negative effect on brand image. Crisis Communication experts are employed to save an organizations reputation against
various threats and unwanted challenges.
Brand identity is one of the most valuable assets of an organization. The main purpose of Crisis Communication team is toprotect the brand
identity and maintain the organizations firm standing within the industry.
Crisis Communication specialists strive hard to overcome tough situations and help the organization come out of difficult situations in the
best possible and quickest way.
Crisis Communication Process

Employees should not ignore any of the external parties and important clients Come out, meet them and discuss the
problem with them. There is nothing to be ashamed of. If needed, seek their help. Media must not be ignored. Answer their
questions. Avoiding media makes situation all the more worse.

Dont criticize individuals. Show a feeling of care and concern for them. Share their feelings and encourage them not to lose
hope. Encourage them to deliver their level best. Put yourself in their place. Respect them and avoid playing blame games.

Effective communication must be encouraged at the workplace during emergency situations. Employees should have an
easy access to superiors cabins to discuss critical issues with them and reach to a mutually acceptable solution.

Information must flow across all departments in its desired form. One should not rely on mere guess works or assumptions
during crisis. Make sure the information you have is accurate.

Crisis communication specialists must learn to take quick decisions. Remember one needs to respond quickly and
effectively during unstable situations. Think out of the box and devise alternate plans for the smooth functioning of organization.

Make sure information is kept confidential. Serious action must be taken against employees sharing information and data with
external parties. Such things are considered highly unprofessional and unethical and spoil the reputation of the organization.

The superiors must evaluate performance of employees on a regular basis. Ask for feedbacks and reports to know what they
are up to. Conduct surprise audits to track performance of employees.

Organizations hire crisis communication specialists to overcome tough times as well as to maintain their reputation and position in the
market.

Crisis Management Team

Sequence of sudden unwanted events leading to major disturbances at the workplace is called crisis. Crisis arises on an extremely short
notice and triggers a feeling of fear and uncertainty in the employees.
It is essential for the superiors to sense the early signs of crisis and warn the employees against the same. Once a crisis is being detected,
employees must quickly jump into action and take quick decisions.

What is a Crisis Management Team ?

A Crisis Management Team is formed to protect an organization against the adverse effects of crisis. Crisis Management team prepares an
organization for inevitable threats.

Organizations form crisis management team to decide on future course of action and devise strategies to help organization come
out of difficult times as soon as possible.
Crisis Management Team is formed to respond immediately to warning signals of crisis and execute relevant plans to overcome emergency
situations.

Role of Crisis Management Team

Crisis Management team primarily focuses on:

Detecting the early signs of crisis.

Identifying the problem areas

Sit with employees face to face and discuss on the identified areas of concern

Prepare crisis management plan which works best during emergency situations

Encourage the employees to face problems with courage, determination and smile. Motivate them not to lose hope and deliver
their level best.

Help the organization come out of tough times and also prepare it for the future.

Crisis Management Team includes:

Head of departments
Chief executive officer and people closely associated with him
Board of directors
Media Advisors
Human Resource Representatives
The role of Crisis Management Team is to analyse the situation and formulate crisis management plan to save the organizations reputation
and standing in the industry.

How does Crisis Management Team function ?

A Team Leader is appointed to take charge of the situation immediately and encourage the employees to work as a single unit.
The first step is to understand the main areas of concern during emergency situations.
Crisis Management Team then works on the various problems and shortcomings which led to crisis at the workplace. The team members
must understand where things went wrong and how current processes can be improved and made better for smooth functioning of the
organization.
It is important to prioritize the issues. Rank the problems as per their effect on the employees as well as the organization. Know which
problems must be resolved immediately and which all can be attended a little later.
A single brain cannot take all decisions alone. Crisis Management Team should sit with rest of the employees on a common platform, discuss
prevailing issues, take each others suggestions and reach to plans acceptable to all.
One of the major roles of the Crisis management team is to stay in touch with external clients as well as media. The team must handle
critical situations well.
Develop alternate plans and strategies for the tough times. Make sure you have accurate information. Double check your information
before finalizing the plan.
Implement the plans immediately for results. Proper feedback must be taken from time to time.

Crisis Management team helps the organization to take the right step at the right time and help the organization overcome critical situations.

Ways to Overcome Organizational Crisis

Sequence of unwanted events leading to uncertainty at the workplace is called as crisis. Crisis leads to major disturbances at the workplace
and creates unrest amongst the employees.
Employees must not lose hope during crisis. It is important for them to face inevitable threats with courage, determination and smile.
Let us go through various ways to overcome crisis:

Adopt a focused approach. Take initiative and find out where things went wrong. Identify the problem areas and devise
appropriate strategies to overcome the same.

Gather correct and relevant information. One should not depend on mere guess works and assumptions during emergency
situations. Double check your information before submitting reports.

Employees should change their perspective. One should always look at the brighter side of things. Remember life has its own
ups and downs. Unnecessary cribbing and complaining does not help at the workplace. Avoid making issues over petty things.
Dont adopt a negative attitude; instead understand the situation and act accordingly.

Effective communication is essential to overcome crisis in the organization. Information must flow across all departments in
its desired form. Employees must be aware of what is happening around them. Individuals should have an easy access to their
superiors cabin to discuss critical issues and seek their suggestions. Superiors must address employees on an open forum during
critical situations.

Roles and responsibilities must be delegated as per the employees specialization. Make sure the right person is doing the
right job. Employees must be motivated to deliver their level best and focus on the organizations goals to overcome tough times
in the best possible way.

It is essential to take quick decisions during critical situations. Learn how to take risks. The moment an employee detects the early
signs of crisis, it is important for him to act immediately. Escalate issues to your superiors and do inform your co workers as well.
Dont wait for others to take action.

Be calm and patient. Dont panic and spread baseless rumours around. Taking unnecessary stress makes situation all the more
worse. Remember a calm individual can handle things better. Relax and then decide on the future course of action to overcome
crisis. Dont lash out at others under pressure.

Discussions are essential during crisis. Sit with fellow workers and discuss issues amongst yourselves to reach to mutually
acceptable solutions which would work best at the times of crisis.

Be loyal to your organization even at the times of crisis. Stick to it during bad times. Dont just treat your organization as a mere
source of earning money. It is important to respect your workplace.

Review your performance regularly. Be your own critic. Strive hard to achieve your targets within the desired time frame. Dont
work only when your boss is around.

Avoid unnecessary conflicts and misunderstandings at the workplace. Treat your fellow workers as members of your
extended family. Help each other when needed. Employees should not ask for unjustified things. Think from the managements
perspective as well. Avoid criticizing your colleagues.

Dont hide at the times of crisis. Come out; interact with external clients as well as media. Do not hesitate to ask for help. Ignoring
outsiders worsens the situations.

Managing Stress during Crisis

Crisis refers to a sequence of unwanted events leading to major disturbances at the workplace.

It triggers a feeling of insecurity and fear amongst the employees.

Crisis causes major harm to the organization and poses a threat to its reputation and brand image.
Let us go through various ways of managing stress during crisis:

Once a crisis is being detected, employees should immediately jump into action. Do not panic. Getting hyper and nervous never
lead to any solution; instead make the situation all the more worse.

It is essential for the individuals to stay calm at the times of crisis. One should not react over petty issues. Remember a calm
and composed individual can take better decisions than a stressed one.

Help your fellow workers during emergency situations. Dont lash out at others under pressure. Criticizing others at the
workplace is just not professional. Try to understand what the other person has to say. Employees find it difficult to think logically
under stress.

One should always look at the brighter sides of things. Adopting a negative attitude goes a long way in increasing stress
among individuals. Dont take things to heart. It is best to ignore minor issues.

Job mismatch and overlapping of duties lead to stress during emergency situations. Roles and responsibilities must be
clearly defined as per the specialization of employees during crisis. Every one should be very clear as to what is expected out of
him.

Make individuals work as a team. Individuals working alone are generally overburdened and eventually more stressed out. Let
them work together and share ideas on various topics. Speaking out and discussing issues reduce the stress level at the
workplace.

It is absolutely okay to take short breaks at work even during emergency situations. Human beings are not machines who
can start and stop working just at the push of a button. They need time for themselves. Working at a stretch can lead to fatigue
and eventually individuals lose interest in work. Short tea and snack breaks are necessary to reduce stress. During these breaks
employees get time to interact with each other.

Make necessary arrangements for individuals working at night. It is important for them to feel comfortable at the workplace.
Make sure individuals get dinner on time for them to deliver their level best. There should be proper restrooms and places where
employees can take a nap.

Light music also reduces stress to a large extent. Ensure the office is adequately lit. Dark cabins and suffocated rooms
increase stress and lead to a negative ambience at the workplace.

Encourage necessary motivation programs for the employees to make them face tough times with determination and
courage.

Make sure employees do not feel insecure during emergency situations. It is better to act immediately as per the situation
rather than complaining and cribbing. One should never lose hope even in the worst conditions.

Appreciating the hard work of employees motivates them to perform better every time. Each employee should get his /her
due credit. Employees should stay away from blame games and nasty politics. Such activities are considered highly unproductive
and lower the morale and self confidence of the employees.

Employees should be heard. Ignoring individuals results in stress and affects their performance.

Dont try to do all things together. Adopt a step by step approach. Plan your work well. Managing time effectively also
reduces stress.

Role of Employees in Crisis Management

The art of managing an emergency situation at the workplace through effective planning and quick action refers to crisis management. An
unstable condition which leads to major disturbances at the workplace must be controlled immediately for effective functioning of the
organization.

Crisis Management helps the employees as well as organization to cope with difficult times in the best possible way.
Employees play an essential role in crisis management:

Employees must be serious about their own work. Review your performance regularly. Dont always wait for your boss to ask
for reports. Be your own critic. Strive hard to achieve your targets within the desired time frame. Never adopt a casual attitude at
work. An individual must be able to sense the early signs of crisis and warn his fellow workers against the same. Take initiative on
your own. Escalate issues immediately to your seniors. Dont wait for others to take action.

One should not take things lightly. Once a crisis is being detected, employees must immediately jump into action.

Encourage effective communication during emergency situations. Dont keep things to yourself. Discuss ideas amongst your
fellow workers to reach to a plan which would work best at the times of crisis.

Dont spread baseless rumours about your product and organization. Avoid spreading fake information.

It is essential for the employees to respect their organization. One should maintain the decorum of the organization. Enter
office with a cool mind. Dont unnecessarily fight fault in your coworkers and fight with them. Remember conflicts lead to no
solution. It is always better to discuss things face to face and come to a mutually beneficial solution.

Dont ask for unjustified things. Think from the managements perspective as well. Remember your organization pays you for your
hard work and not for spreading negativity around. Employees should never indulge in unproductive activities like boycotts or
strikes to get their demands fulfilled. Violence at the workplace is a crime. Neither the management nor the employee benefits out
of it. Such activities in turn tarnish the brand name.

Dont panic. Maintain your calm and decide on the ways to overcome crisis rather than complaining and cribbing. Employees
should never get hyper as stress and anxiety lead to more mistakes one might not otherwise commit. Relax and give your best.

Employees must rely on accurate information. Mere assumptions and guess works create problems and misunderstandings later.

Think out of the box. Try to come out with innovative ideas and strategies to overcome tough times as soon as possible.
Employees must identify the causes of crisis and devise relevant strategies and ways to avoid it.

Individuals must work as a single unit during emergency situations. Ensure free flow of information across departments. Avoid
playing blame games or criticizing others. It only makes situation worse.

Dont hide, instead come out, interact with stake holders and external parties, and ask for help. One must not avoid media.

Discrimination on the grounds of caste, status, income, sex and so on is unethical and leads to crisis. Everyone must be treated
as one for a peaceful environment at the workplace.

Role of Leaders / Managers in Crisis

Management
A sequence of sudden, unplanned and unexpected events leading to instability in the organization and major unrest amongst the individuals
is called as crisis.
Crisis generally arises on a short notice and causes major disturbances at the workplace.
Leaders and managers play an extremely important role during crisis.

One should lead from the front. Show confidence and steadiness. Take complete charge of the situation.

Managers should have full control on the employees. They should know what is happening around. Any issue neglected in the
initial stage might be a major concern later. Problems must be attended immediately. One should not ignore even minor issues or
wait for someone else to take the initiative. Any issue left unattended might lead to crisis and major unrest later.

One should be alert at the workplace. A leader should be able to feel the early signs of crisis and warn the employees against
the negative consequences of the same. It is his duty to take precautionary measures to avoid an emergency situation. A leader
should be able to foresee crisis. Such a stage is also called as Signal Detection.

Leaders must try their level best to prevent crisis. Encourage effective communication at the workplace. Let employees
discuss issues amongst themselves and come to the best possible alternative to overcome crisis.

Ask the employees not to panic at the time of crisis. Encourage them to face the tough times with courage, determination and
smile. Make them work as a single unit. It is the duty of the leader to provide a sense of direction to the employees.

The leaders should interact with the employees more often. Let them feel that you are there for them. Impart necessary crisis
management trainings to the employees.

Planning is essential to avoid emergency situations. Learn to take quick decisions. Make sure everyone at the workplace is
well informed about emergency situations.

Identify the important processes and systems which should keep functioning for the smooth running of the organization.
Develop alternate plans with correct and accurate information.

Dont let negativity creep in the organization. Motivate the employees to believe in themselves and the organization. It is essential
to trust each other during such situations. Take strict action against those spreading rumours and trying to tarnish organizations
image.

Dont avoid stakeholders, external parties and most importantly media. Come out, meet them and explain the whole situation.
Ignoring people makes things worse. Develop strong partnerships with external parties and ask for help.

Never lose hope. Be a strong pillar of support for your team members. They should be able to fall back on you.

Leaders should strive hard to come out of tough times as soon as possible. Learn to take risks. Clarify the roles and
responsibilities of the individuals during this time.

Once the organization is out of crisis, it is the leaders duty to communicate the lessons learnt so that employees do not commit
same mistakes again. Work hard and relive your organizations image. Adapt well to changes and new situations.

12 Best Sources of Sustainable Competitive Advantage in Business

1. Strong research and development capabilities
A business can gain a strong competitive advantage in its industry if it has strong research and development capabilities.
Strong research and development reflects in the companys product development processes. Companies with strong
research capabilities often lead the market with innovation.
2. Access to intellectual properties
The next source of sustainable competitive advantage a business can exploit is the holding of an intellectual right; which can
exist in the form of trademarks, trade names, copyrights and patents.
3. Exclusive re-selling or distribution rights
Holding exclusive distribution right is another source of sustainable competitive advantage. When a company holds
exclusive rights to a product within a given territory; that product can only be sourced from the distributor or holder of such
rights.

4. Ownership of capital equipment

This source of competitive advantage is mainly exploited by companies operating in industries where heavy machinery is
needed. Example of such industries where ownership of capital equipment is a competitive advantage includes publishing,
manufacturing, oil exploration, construction and mining.
5. Superior product or customer support
Any company that has the capacity to quickly respond to customers need and provide subsequent support will have a
competitive advantage over competitors.
6. Low cost or high volume production
If your business has the capacity to produce in high volume; then it can gain a sustainable competitive advantage by
reducing its profit margin and recoup it through high volume sales and turnover.
7. Economic factors
The seventh source of sustainable competitive advantage is the economic factor of a region within a speculated time frame.
A manufacturing company operating from China or India will have competitive advantage over a company manufacturing in
the United States because the economic system in China is more favorable with respect to start up overhead and labor cost.
8. Superior database management and data processing capabilities
This source of competitive advantage is quite clear and understandable. A company that demonstrates the capacity to
process data speedily will have a competitive advantage over other firms with lower processing capacity. This source of
competitive advantage usually plays itself out in the banking industry, telecommunication industry and the service industry in
general.
9. Strong marketing strategy
In the market place, the company with the best marketing strategy wins. No doubts about it. The competition to gain a
stronger competitive advantage in the marketplace is the reason why giant corporations spend millions of dollars on
marketing research and advertising annually.
10. Access to working capital
Access to working capital is one of the strongest sustainable competitive advantages a business can have over its
competitors. Access to working capital is the difference between a billion dollar company and a million dollar company or a
small business and a big business.
11. Excellent management team and operations
Show me a business that is a market leader in its industry and I will show you a business backed by a strong management
team. Exploiting other sources of competitive advantage without a strong business team on ground will only be a futile

attempt. A business management team is essential to harnessing opportunities that create the needed competitive
advantage.
12. Barriers to entry or monopoly
Some businesses have gained competitive advantage because the entry in their industry has been limited by surrounding
circumstances. A good example of industry where barriers to entry creates competitive advantage is the oil exploration and
mining sector (industries where licenses are needed to gain entry because there is government restriction on entry).
Monopoly is also a sustainable competitive advantage and can be gained by having strong ties with the government.
As a final note, these are the 12 sources of sustainable competitive advantage a business can exploit. Remember that a
company without a competitive advantage cannot compete and when you cant compete; you are as good as dead.

resource management strategy .

1.

Create a single resource pool across all projects. This will provide better visibility and accuracy of resource
utilization and availability

2.

Develop a skills library associated to resources to ensure that you have the necessary capabilities when
developing a team to deliver on your project.

3.

Maintain a centralized schedule of your resources so that you can accurately determine workloads and identify
possible conflicts.

4.

Build a strategy to address possible resource shortages in your projects by defining accurate work efforts for the
tasks at hand.

5.

Incorporate capacity tracking reports into your strategy that will provide additional visibility into departmental and
staffing statuses to work on projects.

6.

Prioritize resources and categorize them in different buckets so that you can efficiently get the most out of your
team.

7.

Include contingency plans in your resource management strategy that allows for a Plan B when unexpected
changes occur.

8.

Implement a forecasting strategy that will facilitate better pipeline and staffing for imminent and future projects.

9.

Develop an employee incentive program that will limit turnover and help build continuity in your resource pool for
better planning.

10. Use technology to automate these processes and strategies and to provide a more streamlined approach to
resource management and planning.

Forecasting is the process of making predictions of the future based on past and present data and most commonly by analysis of
trends. A commonplace example might beestimation of some variable of interest at some specified future date. Prediction is a
similar, but more general term. Both might refer to formal statistical methods employing time series, crosssectional or longitudinal data, or alternatively to less formal judgmental methods. Usage can differ between areas of application: for
example, in hydrology the terms "forecast" and "forecasting" are sometimes reserved for estimates of values at certain
specific future times, while the term "prediction" is used for more general estimates, such as the number of times floods will occur
over a long period.
Risk and uncertainty are central to forecasting and prediction; it is generally considered good practice to indicate the degree of
uncertainty attaching to forecasts. In any case, the data must be up to date in order for the forecast to be as accurate as
possible.[1]

Categories of forecasting methods[edit]

Qualitative vs. quantitative methods[edit]
Qualitative forecasting techniques are subjective, based on the opinion and judgment of consumers, experts; they are appropriate
when past data are not available. They are usually applied to intermediate- or long-range decisions. Examples of qualitative
forecasting methods are[citation needed] informed opinion and judgment, the Delphi method,market research, and historical life-cycle
analogy.
Quantitative forecasting models are used to forecast future data as a function of past data. They are appropriate to use when past
numerical data is available and when it is reasonable to assume that some of the patterns in the data are expected to continue into
the future. These methods are usually applied to short- or intermediate-range decisions. Examples of quantitative forecasting
methods are[citation needed] last period demand, simple and weighted N-Period moving averages, simple exponential smoothing, poisson
process model based forecasting [2] and multiplicative seasonal indexes.

Average approach[edit]
In this approach, the predictions of all future values are equal to the mean of the past data. This approach can be used with any sort
of data where past data is available. In time series notation:
[3]

where is the past data.

Although the time series notation has been used here, the average approach can also be used for cross-sectional data (when we
are predicting unobserved values; values that are not included in the data set). Then, the prediction for unobserved values is the
average of the observed values.

Nave approach[edit]
Nave forecasts are the most cost-effective forecasting model, and provide a benchmark against which more sophisticated models
can be compared. This forecasting method is only suitable for time series data.[3] Using the nave approach, forecasts are produced
that are equal to the last observed value. This method works quite well for economic and financial time series, which often have
patterns that are difficult to reliably and accurately predict. [3] If the time series is believed to have seasonality, seasonal nave
approach may be more appropriate where the forecasts are equal to the value from last season. The nave method may also use a
drift, which will take the last observation plus the average change from the first observation to the last observation. [3] In time series
notation:

Drift method[edit]

A variation on the nave method is to allow the forecasts to increase or decrease over time, where the amount of change over time
(called the drift) is set to be the average change seen in the historical data. So the forecast for time is given by
[3]

This is equivalent to drawing a line between the first and last observation, and extrapolating it into the future.

Seasonal nave approach[edit]

The seasonal nave method accounts for seasonality by setting each prediction to be equal to the last observed value of the same
season. For example, the prediction value for all subsequent months of April will be equal to the previous value observed for April.
The forecast for time is:[3]
where =seasonal period and is the smallest integer greater than .
The seasonal nave method is particularly useful for data that has a very high level of seasonality.

Time series methods[edit]

Time series methods use historical data as the basis of estimating future outcomes.

Moving average

Weighted moving average

Kalman filtering

Exponential smoothing

Autoregressive moving average (ARMA)

Autoregressive integrated moving average (ARIMA)

e.g. BoxJenkins
Seasonal ARIMA or SARIMA

Extrapolation

Linear prediction

Trend estimation

Growth curve (statistics)

Causal / econometric forecasting methods[edit]

Some forecasting methods try to identify the underlying factors that might influence the variable that is being forecast. For
example, including information about climate patterns might improve the ability of a model to predict umbrella sales.
Forecasting models often take account of regular seasonal variations. In addition to climate, such variations can also be
due to holidays and customs: for example, one might predict that sales of college football apparel will be higher during
the football season than during the off season.[4]
Several informal methods used in causal forecasting do not employ strict algorithms

, but instead use the

[clarification needed]

judgment of the forecaster. Some forecasts take account of past relationships between variables: if one variable has, for

example, been approximately linearly related to another for a long period of time, it may be appropriate to extrapolate
such a relationship into the future, without necessarily understanding the reasons for the relationship.
Causal methods include:

Regression analysis includes a large group of methods for predicting future values of a variable using information
about other variables. These methods include bothparametric (linear or non-linear) and non-parametric techniques.

Autoregressive moving average with exogenous inputs (ARMAX)[5]

Quantitative forecasting models are often judged against each other by comparing their in-sample or out-of-sample mean
square error, although some researchers have advised against this.[6]

Judgmental methods[edit]
Judgmental forecasting methods incorporate intuitive judgement, opinions and subjective probability estimates.
Judgmental forecasting is used in cases where there is lack of historical data or during completely new and unique
market conditions.[7]
Judgmental methods include:

Composite forecasts

Cooke's method

Delphi method

Forecast by analogy

Scenario building

Statistical surveys

Technology forecasting

Artificial intelligence methods[edit]

Artificial neural networks

Group method of data handling

Support vector machines

Often these are done today by specialized programs loosely labeled

Data mining

Machine Learning

Pattern Recognition

Other methods[edit]

Simulation

Prediction market

Probabilistic forecasting and Ensemble forecasting

Some socioeconomic forecasters often try to include a humanist factor. They claim that humans, through deliberate
action, can have a profound influence on the future. They argue that it should be regarded a real possibility within
our current socioeconomic system that its future may be influenced by, to a varying degree, individuals and small
groups of individuals. Recent popular publications like Capital in the Twenty-First Century are regarded as major
contributors to the increasingly apparent possibility of such reality. It is argued that the influence private and public
investment have on our future can never be discomposed of the individual Machiavelian human character. All
methods that disregard this factor can not only never accurately predict our socioeconomic future, but can even be
used as strong coercion tools. Such theories are generally regarded conspiracy theories, but the increasingly
worrying socioeconomic development in the world grants some of these theories a persistent credibility.

Forecasting accuracy[edit]
The forecast error (also known as a residual) is the difference between the actual value and the forecast value for the
corresponding period.
where E is the forecast error at period t, Y is the actual value at period t, and F is the forecast for period t.
A good forecasting method will yield residuals that are uncorrelated and have zero mean. If there are correlations
between residual values, then there is information left in the residuals which should be used in computing forecasts. If the
residuals have a mean other than zero, then the forecasts are biased.

FORECASTING
Forecasting involves the generation of a number, set of numbers, or scenario that corresponds to a future occurrence.
It is absolutely essential to short-range and long-range planning. By definition, a forecast is based on past data, as
opposed to a prediction, which is more subjective and based on instinct, gut feel, or guess. For example, the evening
news gives the weather "forecast" not the weather "prediction." Regardless, the terms forecast and prediction are
often used inter-changeably. For example, definitions of regressiona technique sometimes used in forecasting
generally state that its purpose is to explain or "predict."
Forecasting is based on a number of assumptions:
1.

The past will repeat itself. In other words, what has happened in the past will happen again in the future.

2.

As the forecast horizon shortens, forecast accuracy increases. For instance, a forecast for tomorrow will be
more accurate than a forecast for next month; a forecast for next month will be more accurate than a forecast
for next year; and a forecast for next year will be more accurate than a forecast for ten years in the future.

3.

Forecasting in the aggregate is more accurate than forecasting individual items. This means that a company
will be able to forecast total demand over its entire spectrum of products more accurately than it will be able
to forecast individual stock-keeping units (SKUs). For example, General Motors can more accurately forecast
the total number of cars needed for next year than the total number of white Chevrolet Impalas with a certain
option package.

4.

Forecasts are seldom accurate. Furthermore, forecasts are almost never totally accurate. While some are
very close, few are "right on the money." Therefore, it is wise to offer a forecast "range." If one were to
forecast a demand of 100,000 units for the next month, it is extremely unlikely that demand would equal
100,000 exactly. However, a forecast of 90,000 to 110,000 would provide a much larger target for planning.

William J. Stevenson lists a number of characteristics that are common to a good forecast:

Accuratesome degree of accuracy should be determined and stated so that comparison can be made to
alternative forecasts.

Reliablethe forecast method should consistently provide a good forecast if the user is to establish some
degree of confidence.

Timelya certain amount of time is needed to respond to the forecast so the forecasting horizon must allow
for the time necessary to make changes.

Easy to use and understandusers of the forecast must be confident and comfortable working with it.

Cost-effectivethe cost of making the forecast should not outweigh the benefits obtained from the forecast.

Forecasting techniques range from the simple to the extremely complex. These techniques are usually classified as
being qualitative or quantitative.

QUALITATIVE TECHNIQUES
Qualitative forecasting techniques are generally more subjective than their quantitative counterparts. Qualitative
techniques are more useful in the earlier stages of the product life cycle, when less past data exists for use in
quantitative methods. Qualitative methods include the Delphi technique, Nominal Group Technique (NGT), sales force
opinions, executive opinions, and market research.

THE DELPHI TECHNIQUE.

The Delphi technique uses a panel of experts to produce a forecast. Each expert is asked to provide a forecast
specific to the need at hand. After the initial forecasts are made, each expert reads what every other expert wrote and
is, of course, influenced by their views. A subsequent forecast is then made by each expert. Each expert then reads
again what every other expert wrote and is again influenced by the perceptions of the others. This
process repeats itself until each expert nears agreement on the needed scenario or numbers.

NOMINAL GROUP TECHNIQUE.

Nominal Group Technique is similar to the Delphi technique in that it utilizes a group of participants, usually experts.
After the participants respond to forecast-related questions, they rank their responses in order of perceived relative
importance. Then the rankings are collected and aggregated. Eventually, the group should reach a consensus
regarding the priorities of the ranked issues.

SALES FORCE OPINIONS.

The sales staff is often a good source of information regarding future demand. The sales manager may ask for input
from each sales-person and aggregate their responses into a sales force composite forecast. Caution should be
exercised when using this technique as the members of the sales force may not be able to distinguish between what
customers say and what they actually do. Also, if the forecasts will be used to establish sales quotas, the sales force
may be tempted to provide lower estimates.

EXECUTIVE OPINIONS.
Sometimes upper-levels managers meet and develop forecasts based on their knowledge of their areas of
responsibility. This is sometimes referred to as a jury of executive opinion.

MARKET RESEARCH.
In market research, consumer surveys are used to establish potential demand. Such marketing research usually
involves constructing a questionnaire that solicits personal, demographic, economic, and marketing information. On
occasion, market researchers collect such information in person at retail outlets and malls, where the consumer can
experiencetaste, feel, smell, and seea particular product. The researcher must be careful that the sample of
people surveyed is representative of the desired consumer target.

QUANTITATIVE TECHNIQUES
Quantitative forecasting techniques are generally more objective than their qualitative counterparts. Quantitative
forecasts can be time-series forecasts (i.e., a projection of the past into the future) or forecasts based on associative
models (i.e., based on one or more explanatory variables). Time-series data may have underlying behaviors that need
to be identified by the forecaster. In addition, the forecast may need to identify the causes of the behavior. Some of
these behaviors may be patterns or simply random variations. Among the patterns are:

Trends, which are long-term movements (up or down) in the data.

Seasonality, which produces short-term variations that are usually related to the time of year, month, or even
a particular day, as witnessed by retail sales at Christmas or the spikes in banking activity on the first of the
month and on Fridays.

Cycles, which are wavelike variations lasting more than a year that are usually tied to economic or political
conditions.

Irregular variations that do not reflect typical behavior, such as a period of extreme weather or a union strike.

Random variations, which encompass all non-typical behaviors not accounted for by the other classifications.

Among the time-series models, the simplest is the nave forecast. A nave forecast simply uses the actual demand for
the past period as the forecasted demand for the next period. This, of course, makes the assumption that the past will
repeat. It also assumes that any trends, seasonality, or cycles are either reflected in the previous period's demand or
do not exist. An example of nave forecasting is presented in Table 1.

Table 1
Nave Forecasting

Period

Actual Demand (000's)

January

45

February

60

45

March

72

60

April

58

72

May

40

58

June

Forecast (000's)

40

Another simple technique is the use of averaging. To make a forecast using averaging, one simply takes the average
of some number of periods of past data by summing each period and dividing the result by the number of periods.
This technique has been found to be very effective for short-range forecasting.
Variations of averaging include the moving average, the weighted average, and the weighted moving average. A
moving average takes a predetermined number of periods, sums their actual demand, and divides by the number of
periods to reach a forecast. For each subsequent period, the oldest period of data drops off and the latest period is
added. Assuming a three-month moving average and using the data from Table 1, one would simply add 45
(January), 60 (February), and 72 (March) and divide by three to arrive at a forecast for April:
45 + 60 + 72 = 177 3 = 59
To arrive at a forecast for May, one would drop January's demand from the equation and add the demand from April.
Table 2 presents an example of a three-month moving average forecast.

Table 2
Three Month Moving Average Forecast

Period

Actual Demand (000's)

January

45

February

60

March

72

April

58

59

May

40

63

June

Forecast (000's)

57

A weighted average applies a predetermined weight to each month of past data, sums the past data from each
period, and divides by the total of the weights. If the forecaster adjusts the weights so that their sum is equal to 1, then
the weights are multiplied by the actual demand of each applicable period. The results are then summed to achieve a
weighted forecast. Generally, the more recent the data the higher the weight, and the older the data the smaller the
weight. Using the demand example, a weighted average using weights of .4, .3, .2, and .1 would yield the forecast for
June as:
60(.1) + 72(.2) + 58(.3) + 40(.4) = 53.8
Forecasters may also use a combination of the weighted average and moving average forecasts. A weighted moving
average forecast assigns weights to a predetermined number of periods of actual data and computes the forecast the
same way as described above. As with all moving forecasts, as each new period is added, the data from the oldest
period is discarded. Table 3 shows a three-month weighted moving average forecast utilizing the weights .5, .3, and .
2.

Table 3
ThreeMonth Weighted Moving Average Forecast

Period

Actual Demand (000's)

January

45

February

60

March

72

April

58

55

May

40

63

June

Forecast (000's)

61

A more complex form of weighted moving average is exponential smoothing, so named because the weight falls off
exponentially as the data ages. Exponential smoothing takes the previous period's forecast and adjusts it by a
predetermined smoothing constant, (called alpha; the value for alpha is less than one) multiplied by the difference
in the previous forecast and the demand that actually occurred during the previously forecasted period (called forecast
error). Exponential smoothing is expressed formulaically as such:
New forecast = previous forecast + alpha (actual demand previous forecast)
F = F + (A F)
Exponential smoothing requires the forecaster to begin the forecast in a past period and work forward to the period for
which a current forecast is needed. A substantial amount of past data and a beginning or initial forecast are also
necessary. The initial forecast can be an actual forecast from a previous period, the actual demand from a previous
period, or it can be estimated by averaging all or part of the past data. Some heuristics exist for computing an initial
forecast. For example, the heuristic N = (2 ) 1 and an alpha of .5 would yield an N of 3, indicating the user would
average the first three periods of data to get an initial forecast. However, the accuracy of the initial forecast is not
critical if one is using large amounts of data, since exponential smoothing is "self-correcting." Given enough periods of
past data, exponential smoothing will eventually make enough corrections to compensate for a reasonably inaccurate
initial forecast. Using the data used in other examples, an initial forecast of 50, and an alpha of .7, a forecast for
February is computed as such:
New forecast (February) = 50 + .7(45 50) = 41.5
Next, the forecast for March:
New forecast (March) = 41.5 + .7(60 41.5) = 54.45
This process continues until the forecaster reaches the desired period. In Table 4 this would be for the month of June,
since the actual demand for June is not known.

Table 4

Period

Actual Demand (000's)

Forecast (000's)

January

45

50

February

60

41.5

March

72

54.45

April

58

66.74

May

40

60.62

June

46.19

An extension of exponential smoothing can be used when time-series data exhibits a linear trend. This method is
known by several names: double smoothing; trend-adjusted exponential smoothing; forecast including trend (FIT);
and Holt's Model. Without adjustment, simple exponential smoothing results will lag the trend, that is, the forecast will
always be low if the trend is increasing, or high if the trend is decreasing. With this model there are two smoothing
constants, and with representing the trend component.
An extension of Holt's Model, called Holt-Winter's Method, takes into account both trend and seasonality. There are
two versions, multiplicative and additive, with the multiplicative being the most widely used. In the additive model,
seasonality is expressed as a quantity to be added to or subtracted from the series average. The multiplicative model
expresses seasonality as a percentageknown as seasonal relatives or seasonal indexesof the average (or trend).
These are then multiplied times values in order to incorporate seasonality. A relative of 0.8 would indicate demand
that is 80 percent of the average, while 1.10 would indicate demand that is 10 percent above the average. Detailed
information regarding this method can be found in most operations management textbooks or one of a number of
books on forecasting.
Associative or causal techniques involve the identification of variables that can be used to predict another variable of
interest. For example, interest rates may be used to forecast the demand for home refinancing. Typically, this involves
the use of linear regression, where the objective is to develop an equation that summarizes the effects of the predictor
(independent) variables upon the forecasted (dependent) variable. If the predictor variable were plotted, the object
would be to obtain an equation of a straight line that minimizes the sum of the squared deviations from the line (with
deviation being the distance from each point to the line). The equation would appear as: y = a + bx, where y is the
predicted (dependent) variable, x is the predictor (independent) variable, b is the slope of the line, and a is equal to
the height of the line at the y-intercept. Once the equation is determined, the user can insert current values for the
predictor (independent) variable to arrive at a forecast (dependent variable).
If there is more than one predictor variable or if the relationship between predictor and forecast is not linear, simple
linear regression will be inadequate. For situations with multiple predictors, multiple regression should be employed,
while non-linear relationships call for the use of curvilinear regression.

ECONOMETRIC FORECASTING

Econometric methods, such as autoregressive integrated moving-average model (ARIMA), use

complex mathematical equations to show past relationships between demand and variables that influence the
demand. An equation is derived and then tested and fine-tuned to ensure that it is as reliable a representation of the
past relationship as possible. Once this is done, projected values of the influencing variables (income, prices, etc.) are
inserted into the equation to make a forecast.

EVALUATING FORECASTS
Forecast accuracy can be determined by computing the bias, mean absolute deviation (MAD), mean square error
(MSE), or mean absolute percent error (MAPE) for the forecast using different values for alpha. Bias is the sum of the
forecast errors [(FE)]. For the exponential smoothing example above, the computed bias would be:
(60 41.5) + (72 54.45) + (58 66.74) + (40 60.62) = 6.69
If one assumes that a low bias indicates an overall low forecast error, one could compute the bias for a number of
potential values of alpha and assume that the one with the lowest bias would be the most accurate. However, caution
must be observed in that wildly inaccurate forecasts may yield a low bias if they tend to be both over forecast and
under forecast (negative and positive). For example, over three periods a firm may use a particular value of alpha to
over forecast by 75,000 units (75,000), under forecast by 100,000 units (+100,000), and then over forecast by
25,000 units (25,000), yielding a bias of zero (75,000 + 100,000 25,000 = 0). By comparison, another alpha
yielding over forecasts of 2,000 units, 1,000 units, and 3,000 units would result in a bias of 5,000 units. If normal
demand was 100,000 units per period, the first alpha would yield forecasts that were off by as much as 100 percent
while the second alpha would be off by a maximum of only 3 percent, even though the bias in the first forecast was
zero.
A safer measure of forecast accuracy is the mean absolute deviation (MAD). To compute the MAD, the forecaster
sums the absolute value of the forecast errors and then divides by the number of forecasts ( |FE| N). By taking the
absolute value of the forecast errors, the offsetting of positive and negative values are avoided. This means that both
an over forecast of 50 and an under forecast of 50 are off by 50. Using the data from the exponential smoothing
example, MAD can be computed as follows:
(| 60 41.5 | + | 72 54.45 | + | 58 66.74 | + | 40 60.62 |) 4 = 16.35
Therefore, the forecaster is off an average of 16.35 units per forecast. When compared to the result of other alphas,
the forecaster will know that the alpha with the lowest MAD is yielding the most accurate forecast.
Mean square error (MSE) can also be utilized in the same fashion. MSE is the sum of the forecast errors squared
divided by N-1 [((FE)) (N-1)]. Squaring the forecast errors eliminates the possibility of offsetting negative numbers,
since none of the results can be negative. Utilizing the same data as above, the MSE would be:
[(18.5) + (17.55) + (8.74) + (20.62)] 3 = 383.94
As with MAD, the forecaster may compare the MSE of forecasts derived using various values of alpha and assume
the alpha with the lowest MSE is yielding the most accurate forecast.
The mean absolute percent error (MAPE) is the average absolute percent error. To arrive at the MAPE one must take
the sum of the ratios between forecast error and actual demand times 100 (to get the percentage) and divide by N [(
| Actual demand forecast | Actual demand) 100 N]. Using the data from the exponential smoothing example,
MAPE can be computed as follows:
[(18.5/60 + 17.55/72 + 8.74/58 + 20.62/48) 100] 4 = 28.33%
As with MAD and MSE, the lower the relative error the more accurate the forecast.

It should be noted that in some cases the ability of the forecast to change quickly to respond to changes in data
patterns is considered to be more important than accuracy. Therefore, one's choice of forecasting method should
reflect the relative balance of importance between accuracy and responsiveness, as determined by the forecaster.

MAKING A FORECAST
William J. Stevenson lists the following as the basic steps in the forecasting process:

Determine the forecast's purpose. Factors such as how and when the forecast will be used, the degree of
accuracy needed, and the level of detail desired determine the cost (time, money, employees) that can be
dedicated to the forecast and the type of forecasting method to be utilized.

Establish a time horizon. This occurs after one has determined the purpose of the forecast. Longer-term
forecasts require longer time horizons and vice versa. Accuracy is again a consideration.

Select a forecasting technique. The technique selected depends upon the purpose of the forecast, the time
horizon desired, and the allowed cost.

Gather and analyze data. The amount and type of data needed is governed by the forecast's purpose, the
forecasting technique selected, and any cost considerations.

Make the forecast.

Monitor the forecast. Evaluate the performance of the forecast and modify, if necessary.

Read more: http://www.referenceforbusiness.com/management/Ex-Gov/Forecasting.html#ixzz4RoP7H0BL

OVERALL COST LEADERSHIP

An overall cost leadership strategy concentrates
attention on a companys value chain resulting in low-cost
products and services. Little attempt is made to
differentiate products or services from those of
competitors, and a wide net is cast over the entire
potential market. By offering the lowest possible cost,
these companies gain market share through price alone.
The most succesful companies are those that limit down
costs at each point in the value chain.
An example of a company that uses low costs at each
point in the value chain is EasyJet. The customers of

EasyJet have been using the internet for making bookings.

In addition to that, EasyJet has been offering no in-flight
meals, no in flight movies. Also, only one type of aircraft is
used, in order to minimise maintenance costs.
Internet technology offers new ways for overall cost
leaders to minimise costs. Indeed, at time the entire cost
structure can be altered, affecting every firm in the
industry. The internet offers the potential for cost leaders
to decrease prices through decreased transaction costs.
This happens not only in B2C companies, but also in B2B
companies. This forces firms to re-examine transaction
costs- from procurement to distribution and after-sale
service.
In order to successfully compete in the internet
economy, overall cost leaders must critically examine
each input in the value chain. For example, dot com
companies such as monster.com have given firms
inexpensive access to a large, technically competent
labour pool. Rather than manually sorting through a paper
resumes, human resource managers can screen potential
applicants by entering sorting criteria that match the
firms needs to an individuals qualifications.
Value chain analysis
The consept of value chain provides important
insights as to how internet based technologies have
helped firms in controlling costs. Value chain analysis
(described by Michael Porter in his book Competitive
Advantage) views the organisation of a sequential
process of value creating activities. This approach is
divided into two types of value-adding activities- primary
and support. Primary activities contribute to the physical
creation of the product or servie, its sale and transfer to
the buyer and its service after the sale. Support activities
(procurement, human resources management, technology
development and firminfrastructure) add value through
important relationships with both primary activities
andother support activities.
In terms of competitive advantage, the internet offers
overall cost leaders new abilities to reduce costs in
primary activities such as marketing (i.e B2C e-commerce)

and support activities such as purchasing (e.g. on-line

auction procurement). Firms using an overall cost
leadership strategy can use internet-based technologies to
reduce value chain costs in a variety of ways:
Web-based inventory control systems that
reduce storage costs by providing realtime
ordering and scheduling to manage demand
more efficiently;
Direct access to status reports and the ability for
customers to check work-in-progress to minimise
rework;
On-line bidding and order processing to
eliminate the need for sales calls and decrease
sales force expences;
On-line
purchase
orders
for
paperless
transactions to reduce costs of both the supplier
and purchaser;
Collaborative design efforts to reduce the cost,
efficiency, and cycle time of new product
development;
On-line testing and evaluation of job applicants
by human resource departments.
Another benefit of internet technology is lower
transaction costs at multiple levels in value chain
activities. Such lower costs benefit fist movers especially.
However the sustainability of competitive advantages may
be problematic: as rivals mimic successful strategies, first
movers loose their initial advantages.
What is 'Price Leadership'
Price leadership is when a firm that is the leader in its sector determines the price of goods or services. This approach can
leave the leader's rivals with little choice but to follow its lead and match these prices if they are to hold onto their market
share. Alternatively, competitors may also choose to lower their prices in the hope of gaining market share as discounters.

BREAKING DOWN 'Price Leadership'

The impacts of price leadership are more apparent in goods or services that offer little differentiation from one producer to
another and also have consumer demand levels that make the particular price selected by the market leader viable based on

the potential to attract consumers away from competing products. There are three primary categories of price leadership:
barometric, collusive and dominant firm.

Types of Price Leadership

The barometric model occurs when a particular firm is more adept at identifying shifts in applicable market forces, allowing it
to respond more efficiently within the market sector. If the company is known for having skill in this area, other producers
follow its lead under the assumption that the price leader is aware of something that they have yet to realize.
The collusive model occurs when a few dominant firms agree to keep their prices in alignment with one another. This is more
common in industries where the cost of entry is high and the costs of production are generally known. Such agreements can
be illegal if the effort is designed to defraud the buying public, as demonstrated by the accusation, made in 2012, that Apple
colluded with e-book publishers to inflate product prices artificially.
The dominant firm model occurs when one firm controls the vast majority of the market share within an industry. As the
dominant firm adjust prices, any smaller firms within the segment must follow in order to maintain the small amount of market
share they currently possess.

Price Leadership and Increased Profitability

In cases where the price leader raises prices, the effects of price leadership can be positive since its competitors are justified
in raising prices higher based on the actions of the price leader. If all prices rise, the increase can be instituted without the
significant threat of losing market share to competing products. In fact, higher prices may improve profitability for all firms as
long as overall consumer demand remains relatively steady.

Potential Negatives of Following Price Leaders

More commonly, undisputed market leaders, such as the big-box retailers, use their operating efficiencies to mark down
prices relentlessly. This forces smaller rivals to lower prices as well in order to retain market share. Since these smaller firms
often do not have the same economies of scale as the price leaders, this attempt to match the leader's prices may lead to
mounting losses over a prolonged period, to the point where they may be forced eventually to close their doors.

Read more: Price Leadership http://www.investopedia.com/terms/p/price-leadership.asp#ixzz4RoRtbbNa

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The Porter's Five Forces tool is a simple but

powerful tool for understanding where power lies
in a business situation. This is useful, because it

helps you understand both the strength of your

current competitive position, and the strength of a
position you're considering moving into.
With a clear understanding of where power lies, you can take fair advantage
of a situation of strength, improve a situation of weakness, and avoid taking
wrong steps. This makes it an important part of your planning toolkit.
Conventionally, the tool is used to identify whether new products, services or
businesses have the potential to be profitable. However it can be very
illuminating when used to understand the balance of power in other situations.

Understanding the Tool

Five Forces Analysis assumes that there are five important forces that
determine competitive power in a business situation. These are:
1.

Supplier Power: Here you assess how easy it is for suppliers

to drive up prices. This is driven by the number of suppliers of
each key input, the uniqueness of their product or service, their
strength and control over you, the cost of switching from one to
another, and so on. The fewer the supplier choices you have, and
the more you need suppliers' help, the more powerful your
suppliers are.
2.
Buyer Power: Here you ask yourself how easy it is for buyers
to drive prices down. Again, this is driven by the number of
buyers, the importance of each individual buyer to your business,
the cost to them of switching from your products and services to
those of someone else, and so on. If you deal with few, powerful
buyers, then they are often able to dictate terms to you.
3.
Competitive Rivalry: What is important here is the number
and capability of your competitors. If you have many competitors,
and they offer equally attractive products and services, then you'll
most likely have little power in the situation, because suppliers
and buyers will go elsewhere if they don't get a good deal from
you. On the other hand, if no-one else can do what you do, then
you can often have tremendous strength.
4.
Threat of Substitution: This is affected by the ability of your
customers to find a different way of doing what you do for

example, if you supply a unique software product that automates

an important process, people may substitute by doing the process
manually or by outsourcing it. If substitution is easy and
substitution is viable, then this weakens your power.
5.
Threat of New Entry: Power is also affected by the ability of
people to enter your market. If it costs little in time or money to
enter your market and compete effectively, if there are few
economies of scale in place, or if you have little protection for
your key technologies, then new competitors can quickly enter
your market and weaken your position. If you have strong and
durable barriers to entry, then you can preserve a favorable
position and take fair advantage of it.
Reprinted by permission of Harvard Business Review. From "How Competitive
Forces Shape Strategy" by Michael E. Porter, March 1979. Copyright 1979 by
the Harvard Business School Publishing Corporation; all rights reserved.

These forces can be neatly brought together in a diagram like the one in figure
1 below:

Figure 1 Porter's Five Forces

Understanding the Five Forces

Porter regarded understanding both the competitive forces and the overall industry
structure as crucial for effective strategic decision-making. In Porter's model, the five
forces that shape industry competition are:
Competitive rivalry. This force examines how intense the competition currently is in
the marketplace, which is determined by the number of existing competitors and what
each is capable of doing. Rivalry competition is high when there are just a few
businesses equally selling a product or service, when the industry is growing and when
consumers can easily switch to a competitors offering for little cost. When rivalry
competition is high, advertising and price wars can ensue, which can hurt a business's

bottom line. Rivalry is quantitatively measured by the Concentration Ratio (CR), which is
the percentage of market share owned by the four largest firms in an industry.
Bargaining power of suppliers. This force analyzes how much power a
business's supplier has and how much control it has over the potential to raise its
prices, which, in turn, would lower a business's profitability. In addition, it looks at the
number of suppliers available: The fewer there are, the more power they have.
Businesses are in a better position when there are a multitude of suppliers. Sources of
supplier power also include the switching costs of firms in the industry, the presence of
available substitutes, and the supply purchase cost relative to substitutes.
Bargaining power of customers. This force looks at the power of the consumer to
affect pricing and quality. Consumers have power when there aren't many of them, but
lots of sellers, as well as when it is easy to switch from one business's products or
services to another. Buying power is low when consumers purchase products in small
amounts and the seller's product is very different from any of its competitors.
Threat of new entrants. This force examines how easy or difficult it is for
competitors to join the marketplace in the industry being examined. The easier it is for a
competitor to join the marketplace, the greater the risk of a business's market share
being depleted. Barriers to entry include absolute cost advantages, access to inputs,
economies of scale and well-recognized brands.
Threat of substitute products or services. This force studies how easy it is for
consumers to switch from a business's product or service to that of a competitor. It looks
at how many competitors there are, how their prices and quality compare to the
business being examined and how much of a profit those competitors are earning,
which would determine if they have the ability to lower their costs even more. The threat
of substitutes are informed by switching costs, both immediate and long-term, as well as
a buyer's inclination to change.
Example of Porter's Five Forces

There are several examples of how Porter's Five Forces can be applied to various
industries online. As an example, stock analysis firm Trefis looked at how Under Armour
fits into the athletic footwear and apparel industry.
Competitive rivalry

Under Armour faces intense competition from Nike, Adidasand newer players.

Nike and Adidas, which have considerably larger resources at their disposal, are making a play
within the performance apparel market to gain market share in this up-and-coming product category.

Under Armour does not hold any fabric or process patents, and hence its product portfolio
could be copied in the future.

Bargaining power of suppliers

A diverse supplier base limits bargaining power.

In 2012, Under Armour's products were produced by 27 manufacturers located across 14

countries. Of these, the top 10 accounted for 49 percent of the products manufactured.

Bargaining power of customers

Under Armour'scustomers include both wholesale customers as well as end customers.

Wholesale customers, like Dick's Sporting Goods and the Sports Authority, hold a certain
degree of bargaining leverage, as they could substitute Under Armour's products with other
competitors' to gain higher margins.

Bargaining power of end customers is lower as Under Armour enjoys strong brand recognition.

Threat of new entrants

Large capital costs are required for branding, advertising and creating product demand, and
hence this limits the entry of newer players in the sports apparel market.

However, existing companies in the sports apparel industry could enter the performance
apparel market in the future.

Threat of substitute products

The demand for performance apparel, sports footwear and accessories is expected to continue,
and hence we think this force does not threaten Under Armour in the foreseeable future.
- See more at: http://www.businessnewsdaily.com/5446-porters-five-forces.html#sthash.VHu13oEd.dpuf

balanced scorecard
kaplan and norton's organizational performance management tool
In the beginning was darkness. We went to work, did our job (well or otherwise) and went home - day in and day out. We did not
have to worry about targets, annual assessments, metric-driven incentives, etc. Aahh life was simple back then.
Then there came light. Bosses everywhere cast envious eyes towards our transatlantic cousins whose ambition was to increase
production and efficiency year-by-year. Like eager younger siblings we trailed behind them on the (sometimes) thorny path to
enlightenment.

Early Metric-Driven Incentives - MDIs - were (generally) focused on the financial aspects of an organization by either claiming to
increase profit margins or reduce costs. They were not always successful, for instance driving down costs could sometimes be at the
expense of quality, staff (lost expertise) or even losing some of your customer base.
Two eminent doctors (Robert S Kaplan and David P Norton) evolved their Balanced Scorecard system from early MDIs and jointly
produced their (apparently) ground-breaking book in 1996. Many other 'gurus' have jumped on the Balanced Scorecard wagon and
produced a plethora of books all purporting to be the Definitive' book on Balanced Scorecards. Amazon.com shows over 4,000
books listed under Balanced Scorecards, so take your pick - and your chances!

balanced scorecard - definition

What exactly is a Balanced Scorecard? A definition often quoted is: 'A strategic planning and management system used to align
business activities to the vision statement of an organization'. More cynically, and in some cases realistically, a Balanced Scorecard
attempts to translate the sometimes vague, pious hopes of a company's vision/mission statement into the practicalities of managing
the business better at every level.
A Balanced Scorecard approach is to take a holistic view of an organization and co-ordinate MDIs so that efficiencies are
experienced by all departments and in a joined-up fashion.
To embark on the Balanced Scorecard path an organization first must know (and understand) the following:

The company's mission statement

The company's strategic plan/vision

Then

The financial status of the organization

How the organization is currently structured and operating

The level of expertise of their employees

Customer satisfaction level

The following table indicates what areas may be looked at for improvement (the areas are not exhaustive and are often companyspecific):

balanced scorecard - factors examples

Department

Areas

Finance

Return On Investment
Cash Flow

Return on Capital Employed

Financial Results (Quarterly/Yearly)
Internal Business
Processes

Number of activities per function

Duplicate activities across functions
Process alignment (is the right process in the right
department?)
Process bottlenecks
Process automation

Learning & Growth

Is there the correct level of expertise for the job?

Employee turnover
Job satisfaction
Training/Learning opportunities

Customer

Delivery performance to customer

Quality performance for customer
Customer satisfaction rate
Customer percentage of market
Customer retention rate

Once an organization has analysed the specific and quantifiable results of the above, they should be ready to utilise the Balanced
Scorecard approach to improve the areas where they are deficient.
The metrics set up also must be SMART (commonly, Specific, Measurable, Achievable, Realistic and Timely) - you cannot improve
on what you can't measure! Metrics must also be aligned with the company's strategic plan.
A Balanced Scorecard approach generally has four perspectives:
1.

Financial

2.

Internal business processes

3.

Learning & Growth (human focus, or learning and development)

4.

Customer

Each of the four perspectives is inter-dependent - improvement in just one area is not necessarily a recipe for success in the other
areas.

balance scorecard implementation

Implementing the Balanced Scorecard system company-wide should be the key to the successful realisation of the strategic
plan/vision.
A Balanced Scorecard should result in:

Improved processes

Motivated/educated employees

Enhanced information systems

Monitored progress

Greater customer satisfaction

Increased financial usage

There are many software packages on the market that claim to support the usage of Balanced Scorecard system.
For any software to work effectively it should be:

Compliant with your current technology platform

Always accessible to everyone - everywhere

Easy to understand/update/communicate

It is of no use to anyone if only the top management keep the objectives in their drawers/cupboards and guard them like the Holy
Grail.
Feedback is essential and should be ongoing and contributed to by everyone within the organization.
And it should be borne in mind that Balanced Scorecards do not necessarily enable better decision-making!
Here's a helpful webpage for further in-depth information on Balanced Scorecards.

What is a 'Balanced Scorecard'

A balanced scorecard is a performance metric used in strategic management to identify and improve various internal
functions of a business and their resulting external outcomes. It is used to measure and provide feedback to organizations.
Data collection is crucial to providing quantitative results, as the information gathered is interpreted by managers and
executives, and used to make better decisions for the organization.

BREAKING DOWN 'Balanced Scorecard'

The balanced scorecard was first introduced by accounting academic Dr. Robert Kaplan and business executive and theorist
Dr. David Norton. It was first published in 1992 in a Harvard Business Review article. Dr. Kaplan and Dr. Norton took
previous metric performance measures and adapted them to include nonfinancial information.

Purpose Behind the Balanced Scorecard

The balanced scorecard is used to reinforce good behaviors in an organization by isolating four separate areas that need to
be analyzed. These four areas, also called legs, involve learning and growth, business processes, customers, and finance.
The balanced scorecard is used to attain objectives, measurements, initiatives and goals that result from these four primary
functions of a business. Companies can easily identify factors hindering company performance and outline strategic
changes tracked by future scorecards. With the balanced scorecard, they look at the company as a whole when viewing
company objectives. An organization may use the balanced scorecard to implement strategy mapping to see where value is
added within an organization. A company also utilizes the balanced scorecard to develop strategic initiatives and strategy
objectives.

The Four Legs of the Balanced Scorecard

Information is collected and analyzed from four aspects of a business. First, learning and growth are analyzed through the
investigation of training and knowledge resources. This first leg handles how well information is captured and how effectively
employees utilize the information to convert it to a competitive advantage over the industry. Second, business processes are
evaluated by investigating how well products are manufactured. Operational management is analyzed to track any gaps,
delays, bottlenecks, shortages or waste.
Third, customer perspectives are collected to gauge customer satisfaction with quality, price and availability of products or
services. Customers provide feedback regarding if their needs are being met with current products. Finally, financial data
such as sales, expenditures and income are used to understand financial performance. These financial metrics may include
dollar amounts, financial ratios, budget variances or income targets. These four legs encompass the vision and strategy of
an organization and require active management to analyze the data collected. Therefore, the balanced scorecard is often
referred to as a management tool, not a measurement tool.

Read more: Balanced Scorecard Definition |

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Strategic R&D Management
As a manager involved in product innovation, your role is becoming more and more crucial to your organisations competitive
advantage, growth and profitability. Our Strategic R&D Management programme is a comprehensive exploration of the world of
product innovation and how it can drive business strategy and development across multiple functions.
A much sought after programme for over 20 years, Strategic R&D Management continues to evolve so that the content is
consistent with the changing global business environment, keeps up with technology and remains at the forefront of product
development.

Performance measurement[1] is the process of collecting, analyzing and/or reporting information regarding the performance of an
individual, group, organization, system or component. It can involve studying processes/strategies within organizations, or
studying engineering processes/parameters/phenomena, to see whether output are in line with what was intended or should have
been achieved.

What Is Performance Measurement?

Put simply, performance measurement is the regular collection of data to assess
whether the correct processes are being performed and desired results are being
achieved.
The Turning Point Guidebook for Performance Measurement (PDF - 81 pages)
provides several definitions of performance measurement including:

Selection and use of quantitative measures that provide information about critical
aspects of activities, including their effect on patients. Measures of what actually happened
can be compared to goals set by your organization.

Performance measurement analyzes the success of a work group, program, or

organization's efforts by comparing data on what actually happened to what was planned or
intended.

Performance measurement asks, Is progress being made toward desired goals? Are
appropriate activities being undertaken to promote achieving those goals? Are there problem
areas that need attention? Successful efforts that can serve as a model for others?

The focus of performance measurement is less on the individual provider and more on
the organization as a whole to evaluate whether an adequate structure and correct
processes are in place to achieve the org
Why Measure Performance?
There are many reasons why an organization should measure performance:

Quality Improvement. Measuring performance can tell you what youre doing well so
you can share your successes and also reveal areas where you need to make adjustments.
Measuring performance tells you whether you are achieving your ultimate goal of improving
patient outcomes.

Transparency. Stakeholders outside of the organization--patients, funders, patient

advocates--want to know about the quality of care being provided. Patients want information
that allows them to make informed choices about their health care services. Sharing
performance information can also help an organization gain support and funding for its
programs.

Accreditation. Organizations, such as NCQA, the Joint Commission, and the

Accreditation Association for Ambulatory Health Care (AAAHC), evaluate health care
provider organizations to provide accreditation or certification signifying that those places
meet certain performance standards.

Recognition as a Patient Centered Medical Home (PCMH). A Patient Centered

Medical Home (sometimes known as a Primary Care Medical Home) is defined as an
approach to providing comprehensive primary carethat facilitates partnerships between
individual patients, and their personal physicians, and when appropriate, the patients family
(Joint Principles of the Patient Centered Medical Home ). NCQA, the Joint Commission,
and AAAHC offer accreditation programs for recognition as a Patient Centered Medical
Home.

Participation in financial incentive programs or demonstrations. For example, The

Centers for Medicare and Medicaid Electronic Health Record Incentive Programs provide
incentive payments to eligible professionals, eligible hospitals and critical access hospitals
(CAHs) as they adopt, implement, upgrade or demonstratemeaningful use of certified
Electronic Health Records (EHR) technology. Eligible professionals and hospitals who
participate in the program must be able to record, store, and report clinical quality measures
(CQM), which CMS defines as the processes, experience, and/or outcomes of patient care,
observations or treatment that relate to one or more quality aims for health care such as
effective, safe, efficient, patient-centered, equitable, and timely care.

How Can We Better Manage Performance?

After measuring performance, the next step is to use the information to improve care.
Performance measures provide a picture of your organizations quality, but further
research will be necessary to determine the factors that influence the measure results
and how you can learn from positive results and make changes where performance is
not at an optimal level.
Performance management is when an organization uses performance measures and
standards to achieve desired results. It is a forward-looking, continuous process.
Performance management can be implemented at the program, organization,
community, and state levels.
From Silos to Systems: Using Performance Management to Improve the Publics
Health (PDF - 44 pages) describes four components of performance management:

Performance standards: Establishment of organizational standards, goals, and targets

Performance measures: Development, application, and use of performance measures

to assess achievement of standards
Reporting of progress: Documentation and reporting of progress in meeting

standards
Quality improvement:

Establishment of a program or process to achieve quality

improvement based on performance standards, measurements, and reports

A management control system (MCS) is a system which gathers and uses information to evaluate the performance of different
organizational resources like human, physical, financial and also the organization as a whole in light of the organizational strategies
pursued.

Management control system influences the behavior of organizational resources to implement organizational strategies.
Management control system might be formal or informal.

Management control[edit]
According to Maciariello et al. (1994), management control is concerned with coordination, resource allocation, motivation, and
performance measurement. The practice of management control and the design of management control systems draws upon a
number of academic disciplines.

Management control involves extensive measurement and it is therefore related to and requires contributions from
accounting especially management accounting.

Second, it involves resource allocation decisions and is therefore related to and requires contribution from economics
especially managerial economics.

Third, it involves communication, and motivation which means it is related to and must draw contributions from social
psychology especially organizational behavior (see Exhibit#1). [5]

Alif Aiqal (2007) defined Management Control as the process by which managers influence other members of the organization to
implement the organizations strategies.

Management accounting and management accounting system[edit]

Anthony & Young (1999) showed that management accounting has three major subdivisions:

full cost accounting,

differential accounting and

management control or responsibility accounting.[6]

Chenhall (2003) mentioned that the terms management accounting (MA), management accounting systems (MAS), management
control systems (MCS), and organizational controls (OC) are sometimes used interchangeably.
In this case, management accounting refers to a collection of practices such as budgeting or product costing. But management
accounting systems refers to the systematic use of management accounting to achieve some goal and management accounting
systems is a broader term that encompasses management accounting systems and also includes other controls such as personal or
clan controls.
Finally organizational controls is sometimes used to refer to controls built into activities and processes such as statistical quality
control, just-in-time management.[7]

Finance-oriented vs. operational-oriented management control[edit]

Traditionally, most measures used in management control systems are accounting-based and financial in nature. This emphasis on
financial measures, however, distracts from essential non-financial factors such as customer satisfaction, product quality, etc.
Furthermore, non-financial measures are better predictors of long-run performance.

Consequently, a management control system should include a comprehensive set of performance aspects consisting of both
financial and non-financial metrics. The inclusion of non-financial measures has become an essential characteristic of current
management control systems, to the point of becoming the main criterion in distinguishing different systems.
Therefore, depending on the balance between financial and non-financial measures, a management control system may be
characterized as finance-oriented or operations-oriented. Finance-oriented control systems are primarily based on financial
accounting data, such as costs, earnings or profitability, whereas operations-oriented control systems are primarily based on nonfinancial data that focus on operational output and quality, for example service volume, employee turnover, or customer complaints. [8]

Management control system techniques[edit]

According to Horngren et al. (2005), management control system is an integrated technique for collecting and using information to
motivate employee behavior and to evaluate performance.[9] Management control systems use many techniques such as

Activity-based costing

Balanced scorecard

Benchmarking and Benchtrending

Budgeting

Capital budgeting

JIT

Kaizen (Continuous Improvement)

Program management techniques

Target costing

Total quality management (TQM)