BUSINESS economics : BUSINESS economics Class 12
May, 2010 Recap : Recap Forecasting Techniques
Bottom-up Forecasting Techniques and Routes : Forecasting Techniques and Routes 3 Forecasting: Summary : Forecasting: Summary 4 Sophisticated forecasting is essential for capital budgeting decisions
Quantitative forecasting uses historical data to establish relationships and trends which can be projected into the future
Qualitative forecasting uses experience and judgment to establish future behaviours
Forecasts can be made by either the ‘top down’ or ‘bottom up’ routes. Qualitative forecasting : Qualitative forecasting 5 The keys to employing qualitative forecasting are:
Data as an historical series is not available or is not relevant to future needs.
An unusual product or a unique project is being contemplated. Limitations of Time series : Limitations of Time series The project’s life is longer than the safe extrapolation of a time series. 6 Need for Expert opinion : Need for Expert opinion 7 Experts are available, and should debate the issues. Data From Expert Opinion : Data From Expert Opinion 8 By Survey-
Data can be gathered by phone or in writing.
Data comes in three categories:
The survey group is known as the ‘reference population’. Data From Expert Opinion : Data From Expert Opinion 9 Jury of executive opinion: senior managers draw upon their collective wisdom to map out future events.
These discussions are carried out in open meeting, and may be subject to the drawbacks of group think and personality dominance. Data From Expert Opinion : Data From Expert Opinion 10 The Delphi Method: drawing upon the group’s expertise by getting individual submissions, without the drawback of face to face meetings.
The Delphi Method is named after a famous Oracle who prophesied in the ancient Greek city of Delphi. Data From Expert Opinion : Data From Expert Opinion 11 The Nominal Group Technique is a face to face Delphi method, allowing group discussion.
The Devils Advocate method poses sub-groups to question the group’s findings.
The Dialectical Inquiry method poses sub-groups to challenge the group’s findings with alternative scenarios. Using Expert Opinion : Using Expert Opinion 12 Output from the group techniques is sorted into scenarios.
These scenarios are further reviewed by the group.
A final ‘consensus of opinion’ forecast is accepted by the group. Qualitative Forecasting: Summary : Qualitative Forecasting: Summary 13 Qualitative forecasting uses expert opinion, collected in a variety of ways.
Qualitative forecasting is used when historical data is not available, or when the planning horizon is very long.
Research shows that both the Delphi Method, and the Nominal Group technique, are reliable forecast methods
Collected expert wisdom has to be carefully managed.