Qualitative Forecasting Also known as Technological or Judgmental Forecasting Use Long Term No history Historical patterns are not expected to apply Several methods Subjective Exploratory S-Growth Curves

Subjective Methods Jury of Executive Opinion Face-to-face discussion Experts from diverse areas Jury interacts to develop a forecast Disadvantages Bias from more outspoken people or bosses No standard method to converge on the forecast Advantages Simple Incorporates experience of several experts

Subjective Methods Advantages Quick and easy method Have disaggregated data Disadvantages Optimistic bias Lacking big picture judgement Sales Force Composite Tally sales force for forecast and then sum responses Market Research /Surveys Systematic, formal estimates based on statistical surveys Particularly useful in estimating new product demand Costly method

Exploratory Methods Look at alternative futures (to better plan through anticipation and influence) Scenario Analysis Especially applicable to strategic planning Identify interactions among possible events Process Experts are presented purpose and system being modeled Experts develop alternatives technologies Timing and interactions are explored for alternatives Write scenarios Scenarios circulated for input

Exploratory Methods Scenario Analysis Advantages Simplifies complex interactions/systems Considers many combinations at once Useful when technology change expected May improve long-range planning Disadvantages Evidence hasn’t shown improved management performance in dealing with changing climates when method is used

Exploratory Methods Delphi Method Forecast time and probability of future event Process Diverse experts are polled for estimates Responses are summarized and sent back for another round of estimates Process repeats until a group opinion is believed to have been reached If significant differences exist these are studied too Unbiased method of getting expert opinions and idea interchange and appears to improve estimates of when event will occur

Exploratory Methods Cross Impact Analysis Defines dependence of a forecast on other forecasts Often used together with Delphi or Scenario Questions are such: If A then what is chance of B? Get the conditional probabilities Experts are forced to consider interactions Disadvantage is that future casual interactions are hard to estimate La Prospective French designed process where individuals and organizational activities are emphasized in a cross analysis The assumption is the the sponsor will act to influence the sequence to improve the possibility of positive events

Exploratory Methods Analogy Methods Compare forecasted variable with similar case where the history /outcome are known Ex: model intro of air travel by what happened with rail Trend Analysis Popular method that works OK for linear relationships Often applied inappropriately Nominal Group Process Like Delphi but after initial poll, experts get together for discussion. Discussion is a possible source of bias Case Studies Generalizing a case study to another situation

Growth or S Curves Technology life cycles follow these curves Slow initial growth Rapid increase Slowing maturity Final decline Expert opinion (subjective) required to estimate key components of curves - max height and proper curve (shape)

Growth or S Curves Curve explained by three parameters a - location, b - slope and L - max height Two most common curves are Logistics & Gompertz Gompertz - not symmetric, reaches inflection sooner than Logistic curve A little data can result in an accurate model, with the right curve

Growth or S Curves cont. Gompertz Logistics (Pearl- Reed)

Current work on Qualitative Much of current work seems to be addressing validity (not repeatable and how to eliminate bias) Compare and combine with quantitative methods Judgmental techniques are used in 40-50% of business forecasts Tend to be overconfident - but still hits the mark in many areas. Smaller companies use judgmental techniques more often than larger firms