Qualitative Techniques of Forecasting

1. QUALITATIVE FORECASTING
TECHNIQUES
DR. ROHIT VISHAL KUMAR
INTERNATIONAL MANAGEMENT INSTITUTE
BHUBANESWAR

2. WHEN TO APPLY QUALITATIVE FORECASTING TECHNIQUES?
• Data as a historical series is not available or is not relevant to the future
• An unusual product / project is being planned [Never Done Before]
• There are numerous variables which will affect the project
• The life of the project is longer than safe exploration of the time series
• Experts are available and consultable

3. FORECAST FROM EXPERT OPINION
• Creation of “Reference Population” or “Survey Group”
• Data can be gathered by phone or in writing.
• Data comes in three categories:
• Highly valuable
• Absolutely essential
• Supporting material
• The data collected is passed on to the “Jury Group”

4. FORECAST FROM EXPERT OPINION
• Jury of executive opinion:
• Consist of people who are experts and will be using the data in some way or the other
• Experts debate the data
• They draw upon their collective wisdom to map out future events
• These discussions are carried out in open meeting
• May be subject to the drawbacks of group think and personality dominance.

5. FORECAST FROM DELPHI METHOD
• Used to overcome the demerits of group think and personality dominance
• It has four key features
• Anonymity
• Iteration
• Controlled Feedback
• Aggregation
• Multiple Group evaluation stages:
• Round 1: Experts reply in writing to the questions posed by the investigating team
• Round 2: The investigating team summarizes comments of the participants and then mails them back to
the experts
• Round 3: Participants read the reactions of the others and either defend their original view or modify their
point of view based on the feedback
• The process continues till a consensus emerges

6. FORECAST FROM DELPHI METHOD
• The first round of the Delphi process are mostly unstructured
• This allows the experts to freely identify and comment on the issues that they see important
• The investigating team then tries to put the issues in a structured set of questions
• Initially in qualitative manner
• Subsequently in quantitative manner
• Different challenge methods can be used:
• 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.
• It has been seen that accuracy tends to increase over successive iterations
• Accuracy also depends on various factors
• Initial set of questions asked
• The Experts selected

7. FORECAST FROM SCENARIO WRITING
• Scenario Writing involves defining the particulars of an uncertain future by writing a “script”
for the environment of an organisation over many years in the future
• New Technology, Population Shifts and Changing consumer demands are among the factors that are
considered and woven into this specialization to provoke thinking of top management
• The most likely scenario is usually written down
• Can also be followed by a discussion phase

8. CHALLENGES: JUDGEMENT BIAS
• Inconsistency:
• Being unable to employ the same decision criteria in similar situation
• Conservatism:
• Failing to change (or change slowly) one’s own mind in light of new evidence
• Recency:
• Having the most recent effect dominate the effects of the past
• Availability:
• Relying upon specific events easily recalled from memory to the exclusion of other pertinent information
• Anchoring:
• Being unduly influenced by initial information which is given more weight in forecasting process
• Illusory Correlation:
• Believing that patterns are evident or causal relation exist when it does not

9. CHALLENGES: JUDGEMENT BIAS
• Search for Supportive Evidence:
• Gathering facts which lead to certain conclusion and disregarding others
• Regression Effect:
• Failing back to average
• Attribution of Success or Failure:
• Believing that success is a result of one’s skills and failure is due to bad luck
• Optimistic Thinking:
• If people think good things will happen to them they tend to give above average estimates
• Underestimating Uncertainty:
• Thinking that past bad performance was a one-off process
• Selective Perception:
• Seeing problems in terms of one owns background and experience

10. CHALLENGES: CONVENTIONAL WISDOM
• The more information we have; the more accurate the decision
• We can distinguish between useful and irrelevant information
• The more confident we are about the correctness of our decisions; the more accurate will
our results be
• We can take decisions rationally
• Monetary rewards and punishments contribute to better performance
• We can assess our chances of success and failure reasonably well
• Experience or Expertise increases the accuracy of the decision
• We know what we want – our preferences are stable

11. PRESENTING FORECAST TO MANAGEMENT
• Why is the forecast needed?
• Who will use the forecast?
• What is the goal that is being achieved by using this forecast?
• What is the management perspective?
• While preparing a report it is always a good practice to report the following:
• The model in the simplified form
• The rational for the choice of the model
• The Error Terms (One Absolute and One Relative)
• Thiel's’ U [if possible] and it’s interpretation
• R2, AIC, BIC and their interpretation
• The forecasted value and the prediction interval [ 𝐹𝑡+1 ± 1.96 𝑀𝑆𝐸 ]
• Conclusions and Caveats

12. THANK YOU
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