Regression analysis is a forecasting technique that establishes a relationship between variablesâ€”one dependent and others(s) independent. In simple regression, there is only one independent variable. In multiple regression there is more than one independent variable. A regression model does not have to be based on a time series, in such cases, the knowledge of future values of the independent variable is used to predict future values of the dependent variable. Regression is normally used in long-range forecasting, if care is taken in selecting the number of periods included and that data set is projected only a few periods into the future, then regression may also be used for short-range forecasting.
Weakness analysis Time Series Analysis
Time series analysis basically depends on past data. This dependence on historical data is itself one of the weakness of the time series analysis and the validity of forecast depends upon the similarity between past trends and future conditions. Unfortunately, departures from historical trends seem to be occurring with increasing frequency. The second potential weakness is that it provides quantitative answers. The use of numbers and equations often gives a misleading appearance of scientific accuracy.
Qualitative or Judgemental Methods
A qualitative forecast is not based exclusively on a mathematical method
These methods are usually based on judgement about the causal factors that underlie the sales of particular products or services and on opinions about the relative likelihood of these causal factors being present in the future.
Judgement methods are useful when historical data are not available, in the absence of past data, statistical methods have no validity. If they exist, they may not be representative of future conditions. In these days, qualitative forecasts assume greater relevance.
Some of the popular judgemental forecasting methods are:
Executive Committee consensus
Survey of Sales force
Executive Committee Consensus/Jury of Executiveâ€˜s Opinion
The Committee of executives from different departments is responsible for the developing of a forecast. The Committee may use many inputs from all parts of the organization and may have staff analysts provide analysis as needed. Such forecasts tend to give a comprehensive picture, not reflecting the extremes that might be present, if they were prepared by individuals.
The Delphi Method
It was first developed by Rank Corporation and was the most sought after method of forecast. The Delphi method draws on a pool of experts from both inside and outside the organization.
In general, the method proceeds on the following lines:
1.Each expert in the group makes independent predictions in the form of brief statements.
2.The coordinator edits and clarifies these statements.
3.The coordinator provides a series of written question to the experts that include feedback supplied by the other experts.
4.Steps 1 to 3 are repeated several times, till consensus is obtained. As many as six rounds may be needed to reach the convergence.