Forecasting Methods a Modern Corporation Include Qualitative Quantitative Methods Commonly

Forecasting Methods

There are three basic forecasting methods namely the time series methods, the regression methods, and qualitative methods. Qualitative methods use management judgment, expertise, and opinion to make forecasts. These methods are most commonly used in long-term strategic planning process bearing in mind there are individuals within an organization whose judgment and opinion are very integral in the running of search organizations (Brown, 1959). In fact their opinions count more than those of experts drawn from outside the organization. Quantitative methods make use of mathematical and statistical tools to capture and analyze information. They are used to measure and model outcomes, eliminating rogue results and other influences (Brown, 1959). Investment managers use quantitative methods to value different classes of securities, analyze criteria for guiding investment decisions, and measure risk and asset return. Quantitative methods are also used in calculating yields and prices, frequency distributions, and risk, and probability.

Scholars have come up with a number of forecasting methodologies thus: genius forecasting, trend extrapolation, consensus methods, and simulations methods to mention but a few. Consensus methods involve seeking expert opinion from more than one person (Brown, 1959). The opinions that have been elicited from the experts are subsequently synthesized and a final focus obtained. Consensus is normally arrived at by putting all experts in a room and letting them to argue their issues out. This methods major undoing is: it is controlled by individuals that have the best group interaction and persuasion skills (Hanke & Reitsch, 1992). Delphi Technique falls under the consensus methods. The technique normally seeks to rectify problems associated with face-to-face confrontation in the group. The technique proceeds in a well-defined sequence. The participants are first asked to write their predictions. Their responses are collated and a copy given to each participant. Participants' input is sought on extreme views. The answers are then collated and given to the participants. Participants are then asked to reassess their original opinion in the third and final round vis-a-vis opinions advanced by other participants. The Delphi method helps in narrowing opinions (Hanke & Reitsch, 1992). It is regarded as the most accurate method relative to group discussions.

Simulation methods use analogs to model complex systems. The analogs can take on several forms like mechanical analog, metaphorical analog, and game analogs. Mathematical analogs are integral in forecasting applications. The technique begins with initial set of assumptions. S-curve is the most common mathematical analog in societal growth. It is based on the concept of logistic or normally probability distribution (Brown, 1959). Multivariate statistical analysis, another mathematical analogue is used to model complex systems that involve relationship between two or more variables.

Data mining is also used in business forecasting. It is not one of the classical statistical modeling. It is not a formal statistical model since the prediction intervals are not computed. Model checking is also limited. However, when there is vast quantity of available data, the data miming methods have become powerful predictors (Brown, 1959).