Chapter 4 - Slide Descriptions

Dr. Saeed Tasouji Hassanpour

February 19, 2024

Slide 16: Types of Forecasts

ˆ Economic Forecasts: Economic forecasts help businesses understand the ups and downs
of the economy, like predicting how prices might change or how many new houses will be
built. These forecasts look at things like inflation rates, how much money is available in the
economy, and how many new homes are being constructed. For example, a company might
use economic forecasts to decide whether to raise prices on their products or invest in new
projects based on expected economic conditions.

ˆ Technological Forecasts: Technological forecasts predict how fast new technologies will
develop and how they’ll affect businesses. They’re like guessing how quickly the latest gadgets
will improve or what new inventions might come out soon. These forecasts help companies
decide what new products to create and how to improve existing ones. For instance, a tech
company might use technological forecasts to plan the release of a new smartphone based on
predictions about advancements in mobile technology.

ˆ Demand Forecasts: Demand forecasts predict how much people will want to buy of a
company’s products or services. They’re like guessing how many people will line up for the
latest video game or how many customers will visit a restaurant next month. These forecasts
help businesses plan how much to produce and how to manage their resources. For example,
a clothing retailer might use demand forecasts to determine how many units of a particular
style of jeans to manufacture based on expected customer interest.

Slide 21: Overview of Qualitative Methods

ˆ These methods rely on expert judgment, opinion, and market insights rather than purely
numerical data.

ˆ Jury of Executive Opinion:

– Imagine gathering a group of top-level experts, like company executives, to share their
insights on future trends. This method combines the wisdom and experience of these
leaders, often supplemented by statistical models to enhance accuracy.
– For example, if a company is planning to launch a new product, they might gather a
panel of executives from different departments to forecast demand, considering factors
like market trends, consumer preferences, and economic conditions.

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 ˆ Delphi Method:

– Picture assembling a panel of experts who are asked questions iteratively, meaning
they’re asked for their opinions multiple times in a structured manner.
– This iterative approach allows experts to refine their forecasts based on feedback from
others in the panel. It’s like a continuous conversation where insights are synthesized
and consensus is gradually reached.
– For instance, in the healthcare industry, the Delphi method might be used to forecast
future disease outbreaks by gathering input from epidemiologists, clinicians, and public
health officials.

Slide 22: Overview of Qualitative Methods

ˆ Sales Force Composite Method:

– Here, we tap into the front line of our business: the sales team. Individual salesper-
sons provide estimates of future sales, which are then reviewed and aggregated for a
comprehensive forecast.
– Picture a company that manufactures electronics. Each salesperson might provide their
projections based on customer inquiries, market trends, and their own sales targets.
These individual estimates are then analyzed to generate a unified sales forecast for the
company.

ˆ Consumer Market Survey Method:

– This is all about going directly to the source: the customer. By conducting surveys and
gathering feedback from consumers, we gain valuable insights into their preferences,
buying intentions, and expectations.
– Imagine a clothing retailer planning their inventory for the upcoming season. They
might conduct surveys to understand which styles, colors, and designs are most appeal-
ing to their target audience. This information helps them forecast demand and tailor
their product offerings accordingly.

Slide 23: Jury of Executive Opinion

ˆ Jury of Executive Opinion method is a qualitative approach to forecasting that uses the
collective wisdom of high-level experts and managers.

ˆ Involves a Small Group of High-Level Experts and Managers:

– Picture a boardroom setting with a select group of top-level executives and managers.
These individuals bring a wealth of experience and insights from various departments
within the organization.

ˆ Group Estimates Demand by Working Together:

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 – The magic happens when these experts come together to estimate future demand. They
discuss market trends, customer behavior, and industry dynamics, pooling their knowl-
edge to formulate forecasts.

ˆ Combines Managerial Experience with Statistical Models:

– This method isn’t solely reliant on gut feelings or opinions. It blends managerial expe-
rience with the application of statistical models to enhance accuracy and reliability.

ˆ Relatively Quick:

– One of the advantages of the Jury of Executive Opinion method is its speed. Com-
pared to some other forecasting techniques, this method can generate forecasts relatively
quickly, making it suitable for rapidly evolving markets.

ˆ Group-think Disadvantage:

– However, it’s essential to be aware of the potential downside: the risk of ”group-think.”
In a homogeneous group, there’s a danger that individuals may conform to a consensus
opinion without critically evaluating alternatives. This can lead to biased or overly
optimistic forecasts.

ˆ Imagine you are a high-level executive at a large technology company. Your company is
planning to launch a new product, a cutting-edge smartphone that incorporates the latest
advancements in mobile technology. However, before proceeding with the launch, you want to
ensure that there is a demand for the product and that it will be well-received by consumers.
To gather insights and make informed decisions, you decide to convene a jury of executive
opinion. You invite a select group of top-level executives and managers from various de-
partments within the organization, including marketing, sales, research and development,
and finance. Each of these individuals brings a wealth of experience and insights from their
respective areas of expertise.
During the meeting, you facilitate a discussion where each executive shares their insights and
opinions on the potential demand for the new smartphone. They discuss market trends, con-
sumer preferences, and economic conditions, pooling their knowledge to formulate forecasts.
The executives also consider factors such as pricing, competition, and the company’s brand
reputation.
As the discussion progresses, the executives refine their forecasts based on feedback from
others in the group. They challenge each other’s assumptions and consider alternative sce-
narios. The goal is to reach a consensus on the expected demand for the new smartphone
and to identify any potential risks or challenges that may arise.

Slide 24: Sales Force Composite

ˆ Sales Force Composite method is a qualitative forecasting approach that uses the frontline
expertise of sales teams.

ˆ Each Salesperson Projects His or Her Sales:

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 – Imagine a scenario where every salesperson in a company is asked to project their
individual sales figures. Each salesperson brings their unique insights, based on their
interactions with customers, knowledge of market trends, and understanding of product
demand.

ˆ Combined at District and National Levels:

– These individual sales projections are then aggregated at district and national levels.
District managers or regional supervisors compile the forecasts from their respective
teams to create a comprehensive picture of expected sales across different regions.

ˆ Sales Reps Know Customers’ Wants:

– One of the strengths of this method lies in the intimate knowledge that sales repre-
sentatives have about their customers’ preferences and purchasing habits. They are on
the frontline, interacting directly with customers, and can provide valuable insights into
their wants and needs.

ˆ Tends to Be Overly Optimistic:

– However, it’s important to note a potential drawback: the Sales Force Composite
method often tends to be overly optimistic. Salespeople are naturally incentivized to
be positive about their sales projections, leading to a potential bias towards inflated
forecasts.

Slide 25: Delphi Method

ˆ Delphi Method is a qualitative forecasting approach that emphasizes iterative collaboration
and consensus-building.

ˆ Iterative Group Process, Continues Until Consensus Is Reached:

– The Delphi Method involves a structured, iterative process where a panel of experts col-
laborates to forecast future trends or outcomes. Unlike traditional forecasting methods,
which rely on one-time predictions, the Delphi Method encourages ongoing dialogue
until a consensus is reached.

ˆ Three Types of Participants:

– Within the Delphi process, there are typically three types of participants:
* Decision Makers: These individuals are often high-level executives or stakeholders
responsible for strategic decision-making within the organization. They provide
guidance and direction to the forecasting process.
* Staff: This group consists of experts or facilitators who manage the Delphi pro-
cess, coordinate communication, and analyze responses. They ensure the smooth
operation of the iterative cycle.
* Respondents: The heart of the Delphi Method, respondents are the panel of experts
who offer their insights and predictions on the topic under consideration. They may
come from diverse backgrounds and industries, offering varied perspectives.

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 ˆ Imagine you are a high-level executive at a pharmaceutical company. Your company is
developing a new medication to treat a specific disease, and you want to forecast the adoption
of this medication once it is launched.
To gather insights and make informed decisions, you decide to conduct a Delphi study. You
assemble a panel of experts who are knowledgeable about the disease, the medication, and
the healthcare industry. The panel includes epidemiologists, clinicians, pharmacists, and
public health officials, each with their own unique perspectives and expertise.
The Delphi study is conducted in multiple rounds. In the first round, you ask the panelists to
provide their initial forecasts for the adoption of the medication. They are asked to consider
factors such as the disease prevalence, the effectiveness of the medication, and the availability
of alternative treatments.
After the first round, the responses are compiled and analyzed. In the second round, the
panelists are provided with a summary of the responses from the first round and asked
to revise their forecasts based on this feedback. They are also asked to consider any new
information that may have emerged since the first round.
This process continues for several rounds, with each round providing an opportunity for the
panelists to refine their forecasts based on the feedback from the previous rounds. The goal is
to reach a consensus on the expected adoption of the medication and to identify any potential
challenges or barriers that may need to be addressed.

Slide 26: Consumer Market Survey

ˆ The Consumer Market Survey method involves gathering insights directly from consumers
regarding their purchasing plans and preferences.

ˆ Ask Customers About Purchasing Plans:

– The Consumer Market Survey method entails reaching out to customers through various
means, such as online surveys, telephone interviews, or in-person focus groups. These
surveys aim to gather information about consumers’ intentions to purchase specific
products or services.

ˆ What Consumers Say and What They Actually Do Are Often Different:

– It’s crucial to recognize that there can be a disparity between what consumers say they
intend to do and what they actually end up doing. While surveys provide valuable in-
sights into consumers’ stated preferences, actual purchasing behavior may be influenced
by various factors such as pricing, availability, and competing products.

ˆ Sometimes Difficult to Answer:

– Additionally, consumer surveys may pose challenges in obtaining accurate and reliable
responses. Some consumers may struggle to express their preferences, while others may
provide responses influenced by social desirability bias or situational factors.