The Advantages of Qualitative Forecasting

Qualitative and quantitative analysis each offer advantages and disadvantages. When statistics are available, quantitative analysis is more objective and precise. Qualitative analysis allows more flexibility and creativity, making it a useful tool for small business. It can be used to identify problems, such as why a product is not selling well, or even as a forecasting technique.

Qualitative Analysis is subjective by nature. Frequently used in conjunction with statistical analysis, it attempts to explain why things work the way they do, while the latter explains how. Qualitative analysis is often used to help a researcher develop the theories that quantitative analysis later attempts to prove. Qualitative analysis is based on words and ideas, while quantitative analysis is based on numbers. Qualitative analysis focuses on finding meaning; quantitative analysis is concerned with statistical relationships. Qualitative analysis relies on personal viewpoints and experiences, including educated guesses, focus groups, panels and questionnaires.

Salespeople are in a unique position to forecast future trends. By their contacts in the field they are able to discern market changes before anyone else in the company. Qualitative information from the field can be anecdotal, occurring when a sales rep hears a piece of news, or systematic, when all reps forecast sales for their territories based on their personal contacts and impressions, and the sales manager aggregates the forecasts into a composite. There are several caveats for this method. The sales manager must know and compensate for the biases of individual reps. He must also be careful to avoid inserting his prejudices, and to make his forecast free from the influences of others in the company.

An effective way to make midrange and long term forecasts is by using a panel of experts from the staff. It is a powerful method because it incorporates the qualitative knowledge and intuition of business professionals from various divisions of a company, such as sales, accounting, executive, production and marketing. Depending on the size of the company, outside analysts may be brought into the process, too. Each person shares his insight about future trends or sales. By meeting either monthly or quarterly, the forecasters can update their forecasts to accommodate changing market conditions. While the method draws on perspectives from the entire business, its weakness is that there is no central responsibility for accuracy. Senior management or the business owner has to analyze the qualitative information against quantitative data, and synthesize it into business strategies and tactics going forward.

The Delphi Method is an enhanced version of the panel of experts. In this model, participating experts are questioned about their forecast two or three times. After each round of questions they are given a summary of the previous round and an opportunity to modify their opinions. Although individual opinions are shared they are kept anonymous. The questioning rounds continue until a predetermined target is reached, such as the number of rounds or a consensus. This stylized dialogue leads the panel closer to a true consensus. The primary drawbacks of the Delphi Method are time and expense.