Business forecasting Essay Example

Qualitative techniques are subjective or judgmental and are based on estimates and opinions. They are most frequently used today when no quantitative data are available. When qualitative techniques are done by knowledgeable experts, they can provide reasonably good forecasts.However, the primary problem in using qualitative methods is identifying the appropriate employees and then getting them to agree on a common forecast.

The Qualitative forecasting methods are: executive committee, the Delphi method, and surveys of the sales force, surveys of customers, historical analogy, and market research. Some of these methods may have quantitative components. The executive committee is another qualitative forecasting technique. It consists of selecting a group of employees to represent the relevant departments of the firm and charging them with the task of creating a forecast.

They use inputs of various sorts from all parts of the organization, as well as outside of the organization, to create the forecast. The disadvantage of the executive committee method is that strong personalities or people in higher positions may dominate, therefore resulting in biased results where the degree of consensus may be masked. It is important to note that all the relevant information be solicited and considered when using this method. The Delphi technique is another common form of qualitative forecasting technique.

While this technique is a variation of the executive committee approach, it is differentiated by the interaction involved, the Delphi method being indirect, iterative and very structured. The Delphi method is based on a structured process for collecting and distilling knowledge from a group of experts by means of a series of questionnaires interspersed with controlled opinion feedback. The basic premise of the Delphi method is to

identify a group of experts and each of them are given a set of questions or issues, and asked to respond.After a given amount of time, the responses are sent to a coordinator or monitoring group that does not participate in the earlier stages of the Delphi processes.

This group then feeds back the responses to other members of the group, while never giving the identity of the response. The experts are then asked to respond again, after reviewing the responses of the other respondents. This process may continue until a consensus is reached among the group. The group may be united to form a final consensus.It allows experts to create a forecast under conditions of uncertainty.

Its objective is the reliable and creative exploration of ideas or the production of suitable information for decision making. Qualitative research is characterized by an emphasis in describing, understanding, and explaining complex phenomena such as the relationships, patterns and configuration among factors or the context in which activities occur. The focus is on understanding the full multi-dimensional, dynamic picture of the subject of study.Its approaches contrast with quantitative methods that aim to divide phenomena into manageable, clearly defined pieces, or variables.

Quantification is good for separating phenomena into distinct and workable elements of a well defined conceptual framework. But when focusing research on what we already know how to quantify, we may miss factors that are key to real understanding of the phenomena being studied. The downside of quantification, as well as on some qualitative methods, is that it does not always support understanding of complex, dynamic, and multidimensional wholes.Qualitative methods are useful, not only in providing rich

descriptions of natural phenomena, but in constructing or developing theories or conceptual frameworks, and in generating hypotheses to explain those phenomena. Qualitative methods can tell you how people feel and what they think, but they cannot tell you how many of your audience feel or think that way.

Conducting a qualitative research involves first, selecting a small group of people with key characteristics in common.After that, convene a discussion through various qualitative methods such as focus groups or in-depth interviews or observations of individual's behaviors through interviews. While conducting interviews, it must be noted that the discussion be somewhat unstructured so participants are free to make any response and don't have to choose from a list of possible responses. Here lies the biggest advantage of qualitative methods, it allows researches to find out trivial facts and details that will not be available to quantitative methods which rely more on facts and numbers in nature.

It is also important that the interviewer asks questions that are timely or flexible and are based on the participants’ responses rather than in a predetermined order. Quantitative Techniques Quantitative techniques are preferred when appropriate data are available. These techniques use statistical methods for projecting from statistical data with the assumption that the historical pattern will continue in the future. Times series forecasting is a quantitative technique that uses analysis of past sales to effectively predict future outcomes but can be limited under times of uncertainty.

Time series methods are easy to use and tend to be accurate, especially over the short term. The two main types of time series forecasting are average smoothing and exponential smoothing. Average Smoothing Average smoothing is a

series of arithmetic averages. Predicting sales for next year is simple.

The actual sales for a number of years is added, and then divided by the number of years used to get the moving average. A weighted moving average is obtained by assigning a specific weight to previous years.The sum of all weights must equal one. Recent years are given a higher weight.

The problem is simple averaging methods do not tend to work well when there is a trend in the data or seasonal effects which is in a great deal of marketing data. Exponential smoothing Exponential smoothing is simply a subtype of the weighted moving average. A new forecast is a weighted sum of actual variables (usually sales) in the current year and the weighted forecast of the variable for that period.It has the advantage of being relatively easy to compute. In contrast, the moving average method is quick, cheap and easy to use, but does not easily take into account variations based on seasonal effects and cycles. Businesses operate on the basis of some forecast about the future, whether it is an intuitive guess or a sophisticated model involving large amounts of statistical data.

In some businesses, quantitative techniques may work well but it is highly dependent on how thoughtful and the forecasting process is.