Qualitative Forecasting

1405 Words Jun 8th, 2012 6 Pages
Common Features and Assumptions Inherent in Forecasting
Forecasting techniques are quite different from each other. But four features and assumptions underlie the business of forecasting. They are:

* Forecasting techniques generally assume that the same underlying causal relationship that existed in the past will continue to prevail in the future. In other words, most of the techniques are based on historical data. * Forecasts are rarely perfect. Therefore, for planning purposes, allowances should be made for inaccuracies. For example, the company should always maintain a safety stock in anticipation of a sudden depletion of inventory. * Forecast accuracy decreases as the time period covered by the forecast increases. Generally
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For example, a restaurant owner may decide to ignore the entry of big-box retailers and grocery stores into his forecasts, assuming that their in-house restaurants and ready-to-cook meals will have no impact on future sales.

Qualitative Forecasting Methods

Qualitative forecasting techniques generally employ the judgment of experts to generate forecasts. A key advantage of these procedures is that they can be applied in situations where historical data are simply not available. Moreover, even when historical data are available, significant changes in environmental conditions affecting the relevant time series may make the use of past data irrelevant and questionable in forecasting future values of the time series. For example, historical data on petrol prices would likely be of questionable value in determining future petrol prices if other factors (oil boycotts, gasoline rationing programs, scientific breakthroughs in alternative energy use, etc.) suddenly assumed increased importance. Qualitative forecasting methods offer a way to generate forecasts in such cases.
Four of the better-known qualitative forecasting methods are executive opinions, the Delphi method, sales-force polling, and consumer surveys: 1. Executive Opinions

The subjective views of executives or experts from sales, production, finance, purchasing, and administration are averaged to generate a forecast about future sales. Usually this

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