FORECASTING:JUDGMENTAL FORECASTING METHODS

JUDGMENTAL FORECASTING METHODS

Judgmental forecasting methods are, by their very nature, subjective, and they may involve such qualities as intuition, expert opinion, and experience. They generally lead to forecasts that are based upon qualitative criteria.

These methods may be used when no data are available for employing a statistical forecasting method. However, even when good data are available, some decision makers prefer a judgmental method instead of a formal statistical method. In many other cases, a combination of the two may be used.

Here is a brief overview of the main judgmental forecasting methods.

1. Manager’s opinion: This is the most informal of the methods, because it simply involves a single manager using his or her best judgment to make the forecast. In some cases, some data may be available to help make this judgment. In others, the manager may be drawing solely on experience and an intimate knowledge of the current conditions that drive the forecasted quantity.

2. Jury of executive opinion: This method is similar to the first one, except now it involves a small group of high-level managers who pool their best judgment to collectively make the forecast. This method may be used for more critical forecasts for which several executives share responsibility and can provide different types of expertise.

3. Sales force composite: This method is often used for sales forecasting when a company employs a sales force to help generate sales. It is a bottom-up approach whereby each salesperson provides an estimate of what sales will be in his or her region. These estimates then are sent up through the corporate chain of command, with managerial review at each level, to be aggregated into a corporate sales forecast.

4. Consumer market survey: This method goes even further than the preceding one in adopting a grass-roots approach to sales forecasting. It involves surveying customers and potential customers regarding their future purchasing plans and how they would respond to various new features in products. This input is particularly helpful for de- signing new products and then in developing the initial forecasts of their sales. It also is helpful for planning a marketing campaign.

5. Delphi method: This method employs a panel of experts in different locations who independently fill out a series of questionnaires. However, the results from each questionnaire are provided with the next one, so each expert then can evaluate this group information in adjusting his or her responses next time. The goal is to reach a relatively narrow spread of conclusions from most of the experts. The decision makers then assess this input from the panel of experts to develop the forecast. This involved process normally is used only at the highest levels of a corporation or government to develop long-range forecasts of broad trends.

The decision on whether to use one of these judgmental forecasting methods should be based on an assessment of whether the individuals who would execute the method have the background needed to make an informed judgment. Another factor is whether the expertise of these individuals or the availability of relevant historical data (or a combination of both) appears to provide a better basis for obtaining a reliable forecast.

The next seven sections discuss statistical forecasting methods based on relevant historical data.