Being lucky and in the right place at the right time play some role in business success, but not the leading role. More crucial to business success is the careful evaluation of resources and alternatives, the selection of goals for the future, and a strategy for achieving those goals systematically. Successful business managers plan where they want their firm to be at some time in the future and take action to execute that plan. Business planning is a proven way to achieve profitability and growth.

Planning helps managers control their firm. Actual results can be compared with planned results, and necessary operational changes can be implemented quickly. Without a plan, a manager would have to make a subjective judgment as to the necessity of an operational change.

Dealing with Uncertainty

That the future is uncertain is certain. A single financial variable can have a variety of consequences. This is what defines risk, and risk is a strong reason for firms to forecast. Having good forecasting procedures generally improves the quality of predictions about financial variables.

Risk is a basic fact of business life, and no amount of forecasting will ever eliminate it. For some financial variables, no amount of effort will improve the quality of forecasts. For example, research suggests that it is not possible to forecast future values that are determined by supply and demand in rigorously competitive markets (e.g., interest rates and the prices of securities,

commodities, and currencies).

Businesses Re-evaluate Their Forecasting Activities

There was a marked rise in the use of sophisticated forecasting techniques during the 1970s and the early 1980s. This increased use of quantitative, computer-based forecasting was part of a larger movement among U.S. businesses toward more sophisticated planning processes. Because a great deal of these planning data and their related forecasts are proprietary and highly sensitive, it is not easy to assess the benefits of this movement objectively. But it is clear from such popular business publications as Business Week that serious reassessment of the benefits of computer-based forecasting has occurred in some influential business circles during the mid-1980s.