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FORECASTING

QUALITATIVE METHODS

Qualitative methods an Introduction


Forecast deals with estimating values of variables, which takes quantitative values Variables like sales production, profit, market share, rain fall population. Few events like labor strike, arrival of new competitor, formation of new coaliation are difficult to quantify. Adopt less rigorous, more subjective methods to deal with forecasting of such events. Palmistry, astrology, science fiction , futurology are not scientific. They have produced wonderful scenerio of the future, which have come true in many cases. Variety approaches are more rational than scientific.

Qualitative forecasting is relevent to social science, known as inexact science. Reasoning is informal. Attributes are not measurable exactly. Mathematical derivatives are rarely used. Predictions not made with great precision. Forecasting should be accepted on weaker evidence than explanation. Experts should be motivated to use their background knowledge. Forecase expert is one who is rational, large background knowledge, and whose forecasts show record of comparative successes in the long run.

Forecast experts should be able to. Sketch out general direction of future development. Anticipate major junctures on which course of developments will hinge. Make contingency forecasts with respect to alternatives associated with them. So forecasting very far has to be subjective based on power of experts. Three important approaches to forecasting events. 1. Judgemental forecasting 2. Delphi technique. 3. Cross-impact analysis.

JUDGEMENTAL FORECASTING. Methods in which the process used to analyse the data is not well specified. objective data or subjective impressions as inputs , may be supported by formal analysis, the inputs are translated into forecast in the human mind. Various methods of JF 1. Personal interview, 2. Telephone interview 3. Traditional meetings. 4. Structured meetings 5. Role playing 6. Mail questionaire 7. Delphi 8. Cross impact theory 9. System dynamics.

ERRORS in JUDGEMENTAL FORECASTING. 1. Bias. Caused by preconceived notion about the world. Judgement of person who stands to lose or gain from the forecast. Most of the time judge says hope to happen, rather than what they think to happen. Optimism is one form of bias. 2. Anchoring. Tendency to start with an answer while making forecast. Conservative judge used the past as anchor for future for making forecast.

Opinion capture techniques.


Genius ( Single individual) fore casting. Survey ( polling) forecasting. Panel ( face to face interaction) forecasting. Delphi ( survey with feed back without face to face interaction). Forecasting.

Delphi forecasting model


First round participants asked to write what they expect to happen in future. Second round they are asked to specify the year when the event will occur. The year when the event is most likely to occur becomes rating scale. Statistical measures carried out and various comments are sent back to panelists. Reanalyzing the statistical data indicates greater degree convergence among the experts on the issue. Similar technique can be used for decision making.

DELPHI TECHNIQUE.
Named after place Delphi in ancient greece. Type of opinion capture forecasting technique. 1. It is a structured communication process, so that the process is effective is allowing a group of individuals, as a whole, to deal with complex process ( Linstone and turnoff view). 2. Subjective method relying on opinion of a few experts. 3. Panel of experts is constituted to tackle problem of forecasting. Experts may be from inside or outside, but each being expert in some aspect of the problem. 4. The efforts of the panel members are co-ordinated by an impartial leader known as co-ordinator. 5. Problems can be anything like technological, economical or social.

6. co-ordinator prepares a questionaire in writing and sends to each expert in panel. 7. Each expert makes independent predictions n not knowing what others are predicting. 8. Co-ordinator brings the written prediction from all experts, edits and summarizes them. 9. On basis of summary, the co-ordinator writes a new sets of questions and gives back to expert ( second round). 10. again co-ordinator edits, summarizes the answers and repeat the whole process till the coordinator is satisfied with the overall process arrived by the experts. 11.A iterative procedure in which revision are carried out by the experts till the co-ordinator gets a stable response.

Areas where delphi is applied


Forecasting Gathering current and historical data Budget allocations Developing casual relations in complex economic or social phenomina. Setting corporate goal and objectives. Generate and evaluate statergies. Exploring urban and regional planning options. Planning health care systems.

Advantages of delphi.
Undue dominant or eloquent personalities absent. No need to contradict prestigious personalities publicly. One can change views as anonymity is preserved. Individuals can fill the questions at convenience. Relatively cheap to administer. No geographic and scheduling restrictions to get participants together. Evolve consensus through group exercise. Encourages innovative thinking hence capable of ill structured problems. Overall climate of organisation changes with collective involvement. Two way communication. Flexible and applicable to many situations.

Disadvantages of delphi
Inability to make delphi objectives specific. Inability to identify and motivate many informed individuals to participate. Inability to appreciate and highlight consensus and divergence. High cost on communication of ideas, i.e. written feedback editing, distribution of questionaire. Time consuming iterations. Panelists often give inconsistent views.

Variants of Delphi.
1. Talk estimate comprises interaction group committee or panel. 2. EFE Estimate feedback Estimate. 3. Estimate Talk Estimate ( Nominal group technique. Participants generate idea in private. Engage in round robin meeting and each offers idea in time. Discussion allowed after wards. Groups final answer on voting. Used for generation and capture of ideas rather than for estimation of prescribed quantities.

4. EFTE ( Estimate feedback talk estimate) by Nelms and porter. Participants assembled face to face and given back ground information. No discussion at this stage. Questionnaire given and after completing return to delphi leader. Results summarised and displayed before the group and answers ranked from high,medium to low. Feedback on results discussed among the participants. Name of the person who made particular response not disclosed. Second round conducted. Index card given for anonymous questions and comments. Terminates on stability.

Cross impact analysis.


methodology developed by Theodore Gordon and Olaf Helmer to help determine how inter- relationships between events would impact resulting events and reduce uncertainty in the future. analytic technique for predicting how different factors and variables would impact future decisions futurists began to use the methodology in larger numbers as a means to predict the probability of specific events and determine how related events impacted one another. The origin of cross-impact analysis was the problem that Delphi panelists were sometimes asked to make forecasts about individual events, when other events in the same Delphi could affect these events.

Application of Cross impact analysis.


In the past, this tool was used as a simulation method and in combination with the Delphi method. More recently, cross-impact analysis was used on a stand-alone basis or in combination with other techniques to answer a number of research question on different subjects such as the future of a particular industrial sector, world geopolitical evolution, the future of corporate activities and jobs. o the target audience comprises experts from industry, academia, research and government. o This method relies on the use of experts.

Procedure for conducting CIA


Choice of the issue and selecting experts Final selection and definition of the events Design of the probability scale and definition of the time horizon Estimating probabilities Generation of scenarios ( Monte carle simulation ) Resources needed (time, budget, labour force, skills) Outputs are List of possible future scenarios and their interpretation.

MONTE CARLO Simulation


broad class of computational algorithms that rely on repeated random sampling to obtain numerical results; by running simulations many times over in order to calculate those same probabilities heuristically . just like actually playing and recording your results in a real casino situation: hence the name.

Pros and cons of CIA


The main benefits are: 1. It is relatively easy to implement a SMIC questionnaire 2. Cross-impact methods forces attention into chains of causality; a affects b; b affects c. 3. Estimate dependency and interdependency among events 4. It can be used to clarify and increase knowledge on future developments Limitations are. i. Limitation in the number of events to be included in the inquiry ( may be software limits) ii. very difficult to explore the future of a complex system with limited number of hypotheses. iii. Difficult to understand the consistency and validity of the technique. iv. As any other techniques based on eliciting experts' knowledge, the method relies on the level of expertise of respondents.

KSIM model
KSIM, a simulation technique developed by Julius kane, was based on expected interactions between timeseries variables rather than events. Other steps similar as in CIA Like identify fundamendal problem elements Determine appropriate scale independently Determine cross- impact relationships. DETERMINE TIME RESPONSE by computer simulation Iterate steps till the group accepts the model as appropriate. Apply the desired policies.

the workings of cross-impact analysis available to a much larger audience in that no technical sophistication is required to become expressive in the new language. Unlike the procedures developed by Gordon, KSIM methods stress the structural dynamics of the system, the geometry of the linkages rather than refining arithmetic estimates of future probabilities. However, while qualitatively and subjectively oriented, an be easily expanded to any degree of precision, providing the data and mechanisms are sufficiently well known. The key feature of our approach is that it allows one to work with data of any level-from subjective estimates to highly precise physical measurements-and the computer has the character of logical projections of basic hypothesis rather than dogmatic imperatives which is the nature of much of present social, economic, technological, and ecological modelling.

DEMAND FORECASTING & OPERATION SUBSYSTEMS.


INFORMATION ON MOST RECENT DEMAND AND PRODUCTION DEMAND FORECAST FOR OPERATION PLANNING THE SYSTEM. Product design. Process design. Equipment investment replacement. Capacity planning

SCHEDULING THE SYSTEMS. Aggregate production planning. Operation scheduling.

CONTROLLING THE SYSTEM. Production control. Inventory control Labor control Cost control.

OUT PUT OF GOODS AND SERVICES.

DEMAND FORECASTING & OPERATION SUBSYSTEMS.


INFORMATION ON MOST RECENT DEMAND AND PRODUCTION DEMAND FORECAST FOR OPERATION PLANNING THE SYSTEM. Product design. Process design. Equipment investment replacement. Capacity planning

SCHEDULING THE SYSTEMS. Aggregate production planning. Operation scheduling.

CONTROLLING THE SYSTEM. Production control. Inventory control Labor control Cost control.

OUT PUT OF GOODS AND SERVICES.

FORECASTING AREAS AND METHODS


OPERATION TIME HORIZON ACCURACY REQUIRED NATURE OF PRODUCTS MANAGE MENT LEVEL FORECASTIN G METHODS.

Process design Capacity planning Aggregate planning Scheduling Inventory management

Long

medium

Single or few. top

Qualitative.

Long

medium

Single or few

top

Qualitatvie.

Medium

High

Few

Middle

Casual and time series. Time series. Time series.

Short Short

Highest Highest

Many Many

Lower lower

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