Why use both qualitative and quantitative forecasting techniques? Interpret into

Question

Why use both qualitative and quantitative forecasting techniques?

Interpret into English each of the equations below.

Ft+1 = (Bt+ Tt) St+1-N

St = (Dt/Bt) + (1-)St-N

Tt = (Bt- Bt-1) + (1- )Tt-1

Bt = (Dt/St-N) + (1-)(Bt-1 + Tt-1)

What do we mean by a rolling forecast?

What is the connection between planning and forecasting?

What does TOP DOWN and BOTTOM UP refer to in forecasting?

What does aggregated vs non-aggregated data mean relative to forecasting and when would you do each?

What is split data modeling?

Explanation / Answer

Quantitative forecasts often use historical data, such as previous sales and revenue figures, production and financial reports and website traffic statistics. Looking at seasonal sales data, for example, can help a company plan next year’s production and labor needs based on last year’s monthly or quarterly figures. Quantitative forecasting also uses projections based on statistical modeling, trend analyses or other information from expert sources such as government agencies, trade associations and academic institutions.

Qualitative Forecasting Techniques

Qualitative forecasting techniques come from the experience and instincts of seasoned business experts. These forecasting techniques aren’t just guesses; they include interpretation of data combined with professional expertise developed during years on the job. For example, a company wanting qualitative information for projecting sales for the year might estimate the impact of a new ad campaign or promotion the company is planning, look at the effects that new technologies might have on consumer purchasing and take into account recent social fads and trends. A business might forecast demand by holding focus groups of customers to discuss and gauge their reactions to several new product features the company is considering.

A rolling forecast is an add/drop process for predicting the future over a set period of time. Rolling forecasts are often used in long-term weather predictions, project management, supply chain management and financial planning. Planning and forecasting are closely related to each other. Planning is deciding in advance what is to be done in future. Futurity is its essence. But future is uncertain and risky.

Planners, in majority of cases, do not know with certainty the conditions which will exist in future, when activities take place. As a result, they are forced to make certain assumptions regarding future. This is forecasting. Forecasting provides pertinent information for successful planning. Planning without forecasting proves to be wasteful and useless.

Top-down sales forecasting begins with combined data on sales of all products, for example all models or colors in all locations. Then it applies the methods of statistics to predict sales of individual items at particular locations. Depending on the scope of the business, this means breaking down the overall sales prediction into multiple brands, products or even SKUs. This method of forecasting begins with the big picture and breaks it down into the component parts.The opposite of top-down forecasting is the bottom-up approach. In this approach, the forecaster uses sales data to make predictions for each item in each sales area. Then statistical methods sum up the item forecasts to create the forecast at the higher group level. This method starts with the component parts to create a forecast for the entire business.

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