Today’s business and economic environment is characterized by uncertainty about the future. To survive, organizations must anticipate and prepare for the future changes in variables that have significant impact on their profitability or operations. Such variables include changes in interest rates, legislation, taxation and political stability. Qualitative forecasting models are one way to approach the future. These forecasting models predict the future using judgment or intuition rather than records of past data.
In the late 1960s, RAND Corporation invented the Delphi technique, a qualitative method whereby a group of experts develop a forecast. An individual expert could be a decision maker, an industry expert or an employee. Each party is questioned individually about his estimate of demand. The experts then forward their responses anonymously to an independent party, who summarizes these forecasts and supporting arguments and sends them back to the experts with further questions. This process is repeated until a consensus is reached. It is an effective method for long-range forecasting.
To estimate the demand of their products or to identify potential in a new market, some companies carry out consumer surveys. They may involve the use of telephone interviews, personal interviews or questionnaires to gather the required data from consumers in specific markets or locations. The results of the survey are then subjected to vigorous statistical analysis to obtain the required information, such as the estimated demand for a product. The company then adjusts its production level to meet the market demand or develops new products to satisfy the unmet consumers’ needs.
Sales Force Composite
Another technique of forecasting future shifts in market patterns is sales force pooling or sales force composite. In this method, individual salespersons are asked to give their estimates of future sales. This is done on the assumption that since the salespeople are closer to the average consumers, they know the consumers’ needs. The individual salespersons’ forecasts are then aggregated to obtain a future forecast. They may also be used together with the quantitative forecasts developed by the organization to produce a hybrid forecast that is more accurate.
Top managers from finance, sales, production, administration and procurement may also table their opinions, which are combined to form a single forecast about the future or sales. Such executives base their estimates on their experience and may also aggregate the results of statistical models such as trend extrapolation with their qualitative estimates. This results in a more accurate forecast, provided that the managers arrived at their estimates independently.