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Methods of Demand Forecasting.: A. Qualitative Methods: These Methods Rely Essentially

1. Methods of demand forecasting include qualitative methods like the Jury of Executive and Delphi methods, quantitative time series projection methods like trend projection, exponential smoothing, and moving averages, and causal methods. 2. Qualitative methods rely on expert opinions while time series methods analyze historical demand data to extrapolate future trends. Causal methods develop forecasts using quantitative cause-and-effect relationships. 3. The Jury of Executive method involves soliciting managers' sales estimates while the Delphi method anonymously surveys experts over multiple rounds. Time series methods mathematically project trends or adjust forecasts based on past errors.

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Prateek Sharma
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141 views7 pages

Methods of Demand Forecasting.: A. Qualitative Methods: These Methods Rely Essentially

1. Methods of demand forecasting include qualitative methods like the Jury of Executive and Delphi methods, quantitative time series projection methods like trend projection, exponential smoothing, and moving averages, and causal methods. 2. Qualitative methods rely on expert opinions while time series methods analyze historical demand data to extrapolate future trends. Causal methods develop forecasts using quantitative cause-and-effect relationships. 3. The Jury of Executive method involves soliciting managers' sales estimates while the Delphi method anonymously surveys experts over multiple rounds. Time series methods mathematically project trends or adjust forecasts based on past errors.

Uploaded by

Prateek Sharma
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© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
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Methods Of Demand Forecasting.

• After gathering information about various aspects of


the market & demand for Primary & Secondary
sources, an attempt may be made to estimate future
demand. A wide range of Forecasting Methods are
available to the Market analyst.
A. Qualitative Methods : These methods rely essentially
on the judgment of experts to translate qualitative
information into quantitative estimates:
1. Jury Of Executive Method.
2. Delphi Method.

B. Time Series Projection Method: These methods


generate forecasts on the basis of an analysis of the
Historical Time Series. The important methods are as:
1. Trend Projection Method.
2. Exponential Smoothing Method.
3. Moving Average method.

C. Causal Method: More analytical than the preceding


methods, causal methods seek to develop forecasts on
the basis of Cause-Effect relationship specified in an
explicit, quantitative manner:
1. Chain Ratio Method.
2. Consumption Level Method.
3. End Use Method.
4. Base Diffusion Model.
5. Leading Indicator Method.
6. Econometric Method.
A] Qualitative Methods:
1. Jury Of Executive Method: This method is very
popular in practice. It involves soliciting the opinions of
a group of managers on Expected future sales &
combining them into a sales estimate.
• The advantages of this method are:
1. It is an expeditious method for developing a demand
forecast.
2. It permits consideration of a variety of factors like
economic climate, competitive environment, consumer
preferences, technological developments & so on, to
be included in the subjective estimates provided by the
experts.
3. It has immense appeal to managers who tend to prefer
their judgment to mechanistic forecasting techniques.
• The disadvantages of this method are:
1. The biases underlying subjective estimates can’t be
unearthed easily.
2. The reliability of this technique is questionable.

2. Delphi Method: This is used for eliciting the opinions of a


group of experts with the help of a mail survey. The steps
involved in this method are:
1. A group of experts is sent a questionnaire by mail & asked
to express their views.
2. The responses received from the experts are summarized
without disclosing the identity of the experts & sent back to
the experts alongwith a questionnaire meant to probe
further the reasons for extreme views expressed in the first
round.
3. The process may be continued for one or more rounds till a
reasonable agreement emerges in the views of the
experts.
• Delphi method appeals to many organisations for the
following reasons:
1. It has fancy name.
2. It seems to be more accurate & less expensive than
the traditional face to face group meetings.
• While the Delphi method is appealing, there are certain
questions:
1. What is the value of the expert opinion?
2. What is the contribution of additional rounds &
feedback to accuracy?

B] Time Series Projection Methods:


1. Trend Projection Method: It involves: a. Determining
the trend of consumption by analyzing past
consumption statistics & b. Projecting future
consumption by extrapolating the trend.
• When the Trend Projection method is used, the most
commonly employed relationship is the Linear
relationship:
• Yt= a+bt…….Where Yt= Demand for the Year t, t is
the time variable, a is the intercept of the relationship,
& b is the slope of the relationship.
• To estimate the parameters a & b of the linear
relationship, the least squares method is used.

2. Exponential Smoothing Method: Here, forecasts are


modified in the light of observed errors.
• If the forecast value for the year t, Ft, is less than the
actual value for year t, St, the forecast for the year t+1,
Ft+1, is set higher than Ft. If Ft>St, Ft+1, is set lower
than Ft.
3. Moving Average method: As per the moving
average method of sales forecasting, the forecast for
the next period is equal to the average of the sales for
several preceding years. That is symbolically,
• St+St-1+…..+St-n-1
Ft+1= --------------------------
n
Where, ‘Ft+1’ is the forecast for the next period,
‘St’ is the sales for the current period.
‘n’ is the period over which aggregating is done.

C. Causal Method:

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