What is Qualitative Forecasting? Definition and Methods You Can Use
Qualitative forecasting can help a company make predictions about their financial standing based on opinions in the company. If you work as a manager or other high-level employee, you can use forecasts to assess and edit your company's budget. Knowing how to use qualitative forecasting can benefit your company by allowing input from external and internal sources. In this article, we define qualitative forecasting and explore how it's used.
What is qualitative forecasting?
Qualitative forecasting is a method of making predictions about a company's finances that uses judgement from experts. Expert employees perform qualitative forecasting by identifying and analyzing the relationship between existing knowledge of past operations and potential future operations. This allows the experts to make estimations about how a company might perform in the future based on the opinions they offer and the information they collect from other sources, like staff polls or market research.
Why is qualitative forecasting important?
Qualitative forecasting is important for helping executives make decisions for a company. Performing qualitative forecasting can inform decisions like how much inventory to keep, whether a company should hire new staff members and how they can adjust their sales operations. Qualitative forecasting is also crucial for developing projects like marketing campaigns, as it can provide information about a company's service that can highlight which elements of the business to feature in advertisements.
Some benefits of qualitative forecasting include the flexibility to use sources other than numerical data, the ability to predict future trends and phenomena in business and the use of information from experts within a company's industry.
Industries that use qualitative forecasting
Companies in almost any industry can use qualitative forecasting to make predictions about their future operations. Here's how a few industries might use qualitative forecasting:
Sales: Qualitative forecasting can help companies in sales makes decisions like how much of a product to produce and when they should order more inventory.
Healthcare: Healthcare employees can use qualitative forecasting to identify trends in public health and decide which healthcare operations might be in high demand in the near future.
Higher Education: Colleges or universities can use qualitative forecasting to predict the number of students who might enroll for the next term or year.
Construction and manufacturing: Qualitative forecasting can show construction and manufacturing companies the quantity of different materials they use to help determine which materials or equipment they might need for their next project.
Agriculture: Farmers can use qualitative forecasting to assess their sales and decide which crops to plant for the next season based on which products consumers purchase most often.
Pharmaceutical: Qualitative forecasting in pharmaceuticals can help identify which medications are popular among consumers and which needs people are using pharmaceuticals to predict which kinds of pharmaceuticals they might benefit from developing.
Qualitative vs quantitative forecasting
Another method of forecasting is quantitative forecasting. Quantitative forecasting is different from qualitative forecasting because quantitative forecasting relies on numerical values and calculations to make predictions and inform decision-making. While qualitative reasoning works through analyzing judgments and opinions, qualitative reasoning operates based on objective data from past operations to inform a company's decisions. Quantitative data also breaks into two categories, which are historical data forecasts and associative data forecasts. These forecasts involve mathematical calculations and can help a company identify trends in areas like sales or investments.
Here are five methods of quantitative forecasting:
Related: What Are Quantitative Forecasts?
Examples of qualitative forecasting methods
Here are a few examples of qualitative forecasting methods:
The Delphi method involves questioning a panel of experts individually to collect their opinions. Interviewing or gathering information from the experts one at a time rather than in a group can help to prevent bias and ensure that any consensus about business predictions stems from the expert opinions on their own. Other employees then analyze the experts' responses and return them with additional questions until settling on a prediction that makes sense for the company.
Jury of executive opinion
This approach relies on judgments from experts in sales, finance, purchasing, administration or production teams. Forecasting by executive opinion can ensure that a team completes a forecast quickly and considers multiple perspectives from different departments to best inform their forecast. Some companies might use executive opinion forecasting along with a quantitative method.
Market research evaluates the success of a company's services or products by introducing them to potential customers and recording details about how they react. Companies can conduct market research with the help of their own employees or by hiring outside agencies that specialize in market research activities. Some ways to conduct market research include focus groups, consumer surveys or blind product testing, where a customer tries a product without having heard of it before. Based on the reaction of participants, companies can decide which products or services to continue producing and which might need revision in the production stage.
Consumer surveys ask customers of a business about their experience as a consumer. Companies might send consumer surveys to customers through mail-in questionnaires or forms sent through email. Other options for conducting consumer surveys include cold-calling customers on the phone and inviting customers in to the office for personal interviews. After collecting information from consumer surveys, employees can use the details they learn to help inform their predictions about a company's future based on the experience of their existing customers.
Sales force polling
Sales force polling involves speaking with sales staff who work closely with customers and might have thorough information about their satisfaction and experiences with the company. One advantage of sales force polling is that it uses information from employees who are most frequently involved in the actual business operations, which can ensure that the details are correct and relevant. Sales force polling is also simple to conduct since it only requires meeting with salespeople and focuses on the information they provide.
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