Chapter 4, Problem 1DQ

What is a qualitative foretasting model, and when is its use appropriate?

Summary Introduction

To Determine: The meaning of a qualitative forecasting model and its appropriate usage.

Introduction: Forecasting is a technique of predicting future events based on historical data and projecting them into the future using a mathematical model. Forecasting may be an intuitive or subjective prediction.

Explanation of Solution

Qualitative Forecasting Model:

In order to tackle complex decision-making processes, firms adopt different approaches in forecasting. Qualitative forecasting is one of the approaches used in forecasting. It employs cognitive thinking based on personal experience, intuitions, emotions, and value system in order to arrive at a conclusion. Some of the qualitative forecasting techniques are as follows:

• The jury of executive opinion
• Delphi method
• Salesforce composite
• Market survey

Uses of the qualitative technique:

• It is widely used in long-term forecasts and supplement projections based on quantitative techniques.
• Estimation is done on expert guidance rather than by numerical analysis.
• Historical data cannot be modified; however, qualitative techniques can be applied to proceed with forecasting with the help of historical data.