Chapter 3, Problem 1DRQ

What are the main advantage that quantitative techniques for forecasting have over qualitative techniques? What limitations do quantitative techniques have?

Summary Introduction

To determine: The main advantages of quantitative techniques over qualitative techniques over forecasting

Introduction: Qualitative technique helps to gain understanding of fundamental motivations, opinions, and reasons. Quantitative technique used to detect the problem by creating numerical data which can be transferred to statistics.

Explanation of Solution

The main advantages that quantitative techniques have over qualitative techniques of forecasting are the following:

• It removes personal bias and subjectivity in forecasting.
• Since the forecasts are based on data, there are rigor and discipline associated with obtaining authentic data.
• Various complex mathematical models can be used, including bringing in the influence of many variables to the forecast exercise.
• The forecasting model can use computer software for calculations.
• Various analyses, including improvements can be easily carried out on the computerized model.

The major limitations of quantitative techniques are the following:

• The decision maker’s personal experience and knowledge, which are quite valuable inputs, would not be considered in the forecasting exercise.
• The quantitative models are based on historical data. Here the assumption is that the future will largely replicate the past trends. This assumption may not always be true.
• Mathematical models and use of expensive computer software may give an “illusion” of precision, which is misleading.

In practice, it is perhaps advisable to use a mix of quantitative and qualitative methodologies in the forecasting exercise.