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What is a Forecast?
A guess about what is going to happen in the future An integral part of almost all business enterprises Logical and rational, but still a guess! Objective is to minimize error (as you will always be wrong!) Could be a complicated or simple process
Model Differences
Qualitative opinion-based; incorporates judgmental and subjective factors into forecast Quantitative number-based; most frequently used
Time-Series attempts to predict the future by using historical data over time Causal incorporates factors that may influence the quantity being forecasted into the model
Forecasting Models
Forecasting Techniques
Qualitative Models
Delphi Method Jury of Executive Opinion Sales Force Composite Consumer Market Survey Causal Methods Simple Regression Analysis Multiple Regression Analysis Time Series Methods Naive Moving Average
Trend Analysis
Seasonality Analysis Multiplicative Decomposition
The Delphi Method was developed by the Rand Corporation to retain the strength of a joint forecast, while removing the effects of group dynamics.
Grassroots Forecasting
The Grassroots technique is based on the concept of asking those who are close to the eventual consumer, such as salespeople, about what they are going to sell next period, and added the forecasts to predict total demand. Requires an experienced stable work force that knows the customer base. Not good at retail! Can be expensive. Takes sales people away from sales effort. Results can be biased. In more sophisticated systems, forecasts may be adjusted on the basis of the historical correlation between the salespersons forecasts and the actual sales.
Market research is an important activity in most consumer product firms. It also plays an increasingly important role in the political and electoral process.