FORECASTING METHODS

FORECASTING METHODS

1. QUALITATIVE

   • Executive Opinion
     • Subjective views of
       • Executives or experts from
         • Sales
         • Production
         • Finance
         • Purchasing
         • Administration
     • This opinions are averaged to generate a forecast about future sales
     • This method can be used with the help of the trend extrapolation qualitative method
     • ADVANTAGES
       • Done quickly and easily
       • No need of elaborated statistics
     • DISADVANTAGES
       • Several opinions from different people
       • High cohesiveness
       • Strong Leadership
       • Insulation of the group
   • Delphi Method
     • Apanel of experts is questioned individually about their perceptions of future events
       • The experts do not meet as a group
         • This is to reduce the possibility that consensus is reached because of dominant personality factors.
       • The forecasts and accompanying arguments are summarized by an outside party and returned to the experts along with further questions
         • This continues until a consensus is reached
     • ADVANTAGES
       • Effective for long-range forecasting
       • The technique is done by questionnaire format and eliminates the disadvantages of group think
       • There is no committee or debate
     • DISADVANTAGES
       • Low reliability
       • Lack of consensus from the returns
   • Sales Force Polling
     • Salespeople who have continual contacts with customers
       • Forecasts based on sales force polling may be averaged to develop a future forecast
     • ADVANTAGES
       • It is simple to use and understand.
       • It uses the specialized knowledge of those closest to the action.
       • It can place responsibility for attaining the forecast in the hands of those who most affect the actual results.
       • The information can be broken down easily by territory, product, customer, or salesperson.
     • DISADVANTAGES
       • Salespeople’s being overly optimistic or pessimistic regarding their predictions and inaccuracies due to broader economic events that are largely beyond their control.
   • Consumer Surveys
     • Surveys may consist of telephone contacts, personal interviews, or questionnaires as a means of obtaining data. Extensive statistical analysis usually is applied to survey results in order to test hypotheses regarding consumer behavior.

2. QUANTITATIVE

   • Simple Averages
     • Uses an average of all past data as a forecast
   • Simple Moving Average
     • Uses an average of a specified number of the most recent observations, with each observation receiving the same emphasis
   • Weighted Moving Average
     • Uses an average of a specified number of the most recent observations, with each observation receiving a different emphasis
   • Exponential Smoothing
     • A weighted average procedure with weights declining exponentially as data become older
   • Trend Projection
     • Technique that uses the least squares method to fit a straight line to the data
   • Seasonal Indexes
     • A mechanism for adjusting the forecast to accommodate any seasonal patterns inherent in the data