Lesson 3: Evaluating the Advantages and Disadvantages of Qualitative Forecasting

Techniques

Read pages 80-81 of Stevenson’s book

Answer “Discussion and Review Questions” 1, 3, 4 & 17 in pages 120-121 of

Stevenson’s book

Question 1. What are the main advantages that quantitative techniques in forecasting
have over qualitative techniques? What limitations do quantitative techniques have?

Quantitative techniques utilize information regarding sales, inventory, etc based on

historical data. Unlike qualitative forecasting, it has advantages that the latter does not
have. For one, it uses and addresses historical data. Since historical data came from
Company’s unbiased past, managers use this to make informed decisions about the
future. Another advantage is that it shows trend or patterns. Through it, managers can
assess how to respond to changes and trends based on results.

The limitations of quantitative techniques are the detail and costs. Though it uses
historical data, it does not use experience, intuition and grit in decision making. Another
disadvantage is the cost since it may require resources such as time and manpower to
do analysis.

Question 3. List the specific weaknesses of each of these approaches to developing a

forecast:
a. Consumer surveys – The weaknesses of this approach are time, cost, and
behavior patterns. For an organization to conduct surveys, individual/s
who have the necessary skills and knowledge is required. Aside from this,
the amount of time required to reach all the target correspondents can be
long.
b. Salesforce composite – Since this method is based on judgment, the
salesman can be influenced by conditions existing only in his territories,
which may be too positive/negative. Also, the salesman may not be well
equipped with complete information about the industry as a whole. It is
also a tricky that the sales agent make lower forecasts to hit targets and
get incentives.
c. Committee of managers or executives – The disadvantage of this
approach is that because it is imperative for the committee to make
decisions, a majority of viewpoint is chosen even though the minority is
valid. This may result to poor decisions and poor results. Also, there is a
tendency that everybody should please everyone in the committee, thus, it
can put a strain on the relationship and may affect the forecast as well.
Question 4. Briefly describe the Delphi technique. What are the main benefits and
weaknesses?

The Delphi Method/technique is a method wherein managers and staff complete a

series of questionnaire with a goal of coming into a consensus.

Benefits:

1. It uses committees that is permits fewer drawbacks.

2. Because it is through surveys, voices can be heard. It reduces the impact
of dominant people/teams and help reduce peer pressure to conform.
3. Each response is weighed equally.
4. It allows anonymity and reduces the risk of one’s opinion will prevail.

Limitations:
1. Unlike other methods, Delphi lacks clear methodological guidelines.
2. Since it is composed of questionnaires, commitment is required for the
participants who may be asked similar questions multiple times.
3. There is no evidence of reliability.
4. Unlike other methods, there is no participant discussion.

Question 17. What type of forecasting approach, qualitative or quantitative, is better?

The two techniques used are both useful to any company or organization regardless of
the size. There is no globally best or accurate forecasting method or technique. In
addition, there is no forecasting technique without limitations.
As a manager, it is important to know what kind of forecast is needed to identify which
will be a better fit – if it’s qualitative or quantitative. These two methods complement
each other. Qualitative method allows manager to use judgement. For businesses
without historical data, this can be used. Examples are start-ups. Also, with experience
and expertise, one can use the qualitative method. For long-term decisions, qualitative
method is better used. It is best to use quantitative methods for short-term forecasts that
are likely to re-occur in the future, than the long term.