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Stats Project

The document summarizes business forecasting methods. It discusses how businesses use qualitative and quantitative forecasting to predict metrics like sales and make financial decisions. Qualitative methods rely on expert opinions while quantitative methods use statistical analysis of past data. Examples provided include a greeting card company using sales team polling to forecast sales, and a bank using logistic regression of customer data to predict loan defaults and assign credit scores. The document notes limitations of forecasts, as historical data may not reflect the future and unique events cannot be predicted.

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panditnitin2001
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29 views11 pages

Stats Project

The document summarizes business forecasting methods. It discusses how businesses use qualitative and quantitative forecasting to predict metrics like sales and make financial decisions. Qualitative methods rely on expert opinions while quantitative methods use statistical analysis of past data. Examples provided include a greeting card company using sales team polling to forecast sales, and a bank using logistic regression of customer data to predict loan defaults and assign credit scores. The document notes limitations of forecasts, as historical data may not reflect the future and unique events cannot be predicted.

Uploaded by

panditnitin2001
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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Statistics

Group project on
Business Forecasting
Presented by-
Keshav Kaushik
Nisha Shakrawar
Presented Komal Gupta
to- Nikhil Singh Slatia
Nitin Kumar Sharma
Rashi Hora
Content

• What is Business Forecasting


• Qualitative and quantitative method of Forecasting
• Explain the real life example with case study
Business Forecasting
Business forecasting involves making informed guesses about certain business metrics, regardless of whether
they reflect the specifics of a business, such as sales growth, or predictions for the economy as a whole.
Financial and operational decisions are made based on economic conditions and how the future looks, albeit
uncertain. It helps businesses to plan ahead, allocate resources, and make informed decisions.

Business forecasting is not an exact science, but rather an educated guess based on available information. It can
be affected by various factors such as changes in customer preferences, economic conditions, technological
innovations, or unforeseen events. Therefore, it is important to monitor your forecasts regularly and update them
as new data becomes available. You should also compare your forecasts with your actual results and analyze the
differences to improve your forecasting accuracy and reliability.
Types of forecasting methods

Qualitative and Quantitative


Qualitative Models

Qualitative models have typically been successful with short-term predictions, where the scope of the forecast
was limited. Qualitative forecasts can be thought of as expert-driven, in that they depend on market mavens or the
market as a whole to weigh in with an informed consensus.

Qualitative models can be useful in predicting the short-term success of companies, products, and services, but they
have limitations due to their reliance on opinion over measurable data. Qualitative models include:

• Market research: Polling a large number of people on a specific product or service to predict how many people will
buy or use it once launched.

• Delphi method: Asking field experts for general opinions and then compiling them into a forecast.
Quantitative Models

Quantitative models discount the expert factor and try to remove the human element from the analysis. These approaches are
concerned solely with data and avoid the fickleness of the people underlying the numbers. These approaches also try to predict
where variables such as sales, gross domestic product, housing prices, and so on, will be in the long term, measured in months
or years. Quantitative models include:

• The indicator approach: This approach depends on the relationship between specific indicators being stable over time,
e.g., GDP and the unemployment rate.

• Econometric modeling: This is a more mathematically rigorous version of the indicator approach. Instead of assuming that
relationships stay the same, econometric modeling tests the internal consistency of datasets over time and the significance
or strength of the relationship between datasets

• Time series methods: Time-series methods use historical data to predict future outcomes. By tracking what happened in
the past, forecasters expect to get a near-accurate view of the future
Business Forecasting

Explain the real life example with case study


Example 1 Sales Forecasting
• A company forecasting its sales through the end of the year Let’s suppose a small greeting card
company wants to forecast its sales through the end of the year. The company has just a year and a
half of experience and limited data to use for predictions. The company decides to use a qualitative
forecasting method called sales force polling, which involves asking its salespeople to provide their
estimates of future sales based on their interactions with customers. The company then aggregates
and averages the salespeople’s forecasts to get a final projection. This method allows the company
to leverage the expertise and intuition of its sales staff, who have direct contact with the market and
customers. The company can use this forecast to plan its inventory, marketing, and budget for the
next quarter.
Example 2 Loan Defaults
• A bank forecasting loan defaults A bank wants to forecast the probability of loan defaults for its
customers, so that it can manage its credit risk and offer better interest rates. The bank decides to
use a quantitative forecasting method called logistic regression, which involves using historical
data on loan performance and customer characteristics to build a mathematical model that can
predict the likelihood of default for a given customer. The bank then applies this model to its
current and potential customers, and assigns them a credit score based on their default risk. This
method allows the bank to use data-driven insights to make more informed lending decisions and
optimize its profitability
Criticism of Forecasting
Forecasting can be dangerous. Forecasts become a focus for companies and governments mentally limiting their range
of actions by presenting the short to long-term future as pre-determined. Moreover, forecasts can easily break down due
to random elements that cannot be incorporated into a model, or they can be just plain wrong from the start.

• The data is always going to be old. Historical data is all we have to go on, and there is no guarantee that the
conditions in the past will continue in the future.

• It is impossible to factor in unique or unexpected events, or externalities. Assumptions are dangerous, such as the
assumption that banks were properly screening borrowers prior to the subprime meltdown. Black swan events have
become more common as our reliance on forecasts has grown.

• Forecasts cannot integrate their own impact. By having forecasts, accurate or inaccurate, the actions of businesses
are influenced by a factor that cannot be included as a variable.
Thank You

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