Answer to Question #185424 in Management for Akansha

Question

Demand forecasting is not a speculative exercise into the unknown. It is essentially a reasonable judgment of future probabilities of the market events based on scientific background. Explain the statement by elaborating different qualitative and quantitative methods of demand forecasting. (10 Marks) 

Answer 1

Quantitative forecasting methods can be used when there is reason to believe that activity in the past had a certain trend that can be continued in the future, and when the available information is sufficient to identify statistically significant trends or relationships.

Two typical quantitative forecasting methods are:

Time series analysis. It is based on the assumption that what happened in the past gives a good approximation in assessing the future. This analysis is a method of identifying patterns and trends from the past and extending them into the future. This analysis method is used to estimate the demand for goods and services, estimate the stock requirements, forecast the sales structure or the demand for personnel. The more reliable the assumption about the similarity of the future to the past, the more likely the forecast accuracy. So time series analysis will be useless in situations with high levels of mobility or when there has been a significant, well-known change.

The qualitative forecasting methods are:

 - The opinion of the jury. This forecasting method is about combining and averaging the opinions of experts in relevant fields. An informal variation of this method is brainstorming, during which participants first try to generate as many ideas as possible. Only after the generation process stops, some ideas are evaluated.

 - The aggregate opinion of salespeople. Experienced salespeople often predict future demand correctly. They are familiar with consumers and can take into account their recent actions faster than they can build a quantitative model.