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Quantitative & Qualitative Forecasting Techniques:

By apicsforum - Posted on 08 January 2012

Quantitative Methods:
Based on historical information that is usually available within the company. Various techniques are:

Trend Analysis:
A method for forecasting sales data when a definite upward or downward pattern exists. Model includes double exponential smoothing, regression & triple smoothing.

Seasonal Adjustment:
Seasonal models take into account the variation of demand from season to season. Adjustments can be made to a baseline forecast to predict the impact of a seasonal demand.

“A method of forecasting where time series data are separated into up to three components: trend, seasonal, and cyclical; where trend includes the general horizontal upward or downward movement over time; seasonal includes a recurring demand pattern such as day of the week,
weekly, monthly, or quarterly; and cyclical includes any repeating, non seasonal pattern. A fourth component is random, that is, data with no pattern. The new forecast is made by projecting the patterns individually determined and then combining them”.

Graphical Methods:
Plotting information in a graphical form. It is relatively easy to convert a spreadsheet into a graph that conveys the information in a visual manner. Trends & patterns are easier to spot & extrapolation of previous demand can be used to predict future demands.

Econometric Modeling:
A set of equations intended to be used simultaneously to capture the way in which dependent and independent variables are interrelated.

Life Cycle Modeling:
“A quantitative forecasting technique based on applying past patterns of demand data covering introduction, growth, maturity, saturation, and decline of similar products to a new product family”.

Qualitative Methods:
Based on subjective information such as intuition or informed opinion. This type of forecast is essential for new products where no historical information is available. This type of forecast is primarily used for medium & long term planning. Qualitative techniques include the use of information gathered from:

Expert Opinion:
The opinions of experts in the particular area are sought. Experts give their views on current trends & likely future developments that may have an impact on the general economy or a specific industry or market.

Market Research: Conducted thru surveys.

Focus Groups: Consists of panels of customers who are asked to provide their opinions about a product or service.

Historical Analogy: The sale of new product or service is compared with the sales of a previous similar product or service.
It is assumed that the sales patterns associated with the previous product or service can be transferred to the new product or service.

Delphi Method: “A qualitative forecasting technique where the opinions of experts are combined in a series of iterations (repetitions). The results of each iteration are used to develop the next, so that convergence of the experts’ opinions is obtained”. This method is based on the knowledge & judgment of a small group of experts. In many companies a mixture of both historical information (analyzed by quantitative technique) combined with qualitative input (from groups of experts) is useful in establishing a more accurate forecast.

Panel Consensus: A group of people provides opinion about the future & a facilitator brings the group to a consensus. The groups as whole would make better decisions than would each member individually.

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