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Judgmental Forecasting: Delphi

Method; Scenario Analysis

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Readings • Judgmental Forecasting: Delphi Method: Read

– Pages 436-438, “Business Forecasting”, 5th ed by

Wilson & Keating, Tata McGraw-Hill – The Article on “Inflation Could Be A Dampener”,

Investor’s Guide, Economic Times, Kolkata Edition, dated 7 Sep 2009;

• Judgmental Forecasting: Scenario Analysis: – Case “Zenith Marketing Research for High Definition

Television (9-591-025 (HBS)”

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Three Systems of Techniques for

Business Forecasting

• First forecasting model is cause-and-effect.

• This model assumes a cause determines an

outcome.

• Cause may be an investment in information

technology, and the effect is sales.

• This model requires historical data not only of

effect (say, sales), but also the “cause” (say,

information technology expenditure).

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Three Systems of Techniques for

Business Forecasting

• Second is the time-series model

• Data are projected forward based on an established method like -- moving average, simple average, exponential smoothing, decomposition, and Box-Jenkins.

• This model assumes data patterns from the recent past will remain stable in future.

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Three Systems of Techniques for

Business Forecasting

• Third is the judgmental model.

• To produce a forecast without useful historical data (while projecting sales for a brand new product or when market conditions change making past data obsolete).

• In absence of historical data, alternative data collected from experts in the field (Delphi method), prospective customers (Conjoint Analysis), trade groups, business partners, or other relevant source of information.

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Delphi Method

(i) Pages 436-438, “Business Forecasting”, 5th ed by Wilson & Keating, Tata McGraw-Hill

(ii) The Article on “Inflation Could Be A Dampener”, Investor’s Guide, Economic Times, Kolkata Edition, dated 7 Sep 2009;

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Delphi Method

• When experts gather in a single meeting

location and asked about the future, group

dynamics may distort the process and

resulting consensus may not be carefully

thought out by all participants

• Delphi method tries to remove the group

dynamic aspect from deliberations of

forecasters

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First Round

• Experts reply in writing to questions posed

by investigating team

• Investigating team summarizes comments

of participants and mails them back.

• Participants read what others’ comments/

thoughts and either defends their original

views of modify them

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Second Round, Third …

• The process of First Round continues through

two or three rounds.

• Investigating Team may (or may not) invite the

participants to a meeting to share their views

and debate.

• At the conclusion of the process the

investigating team will have good insight into the

future.

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Key Features of Delphi Method

• Anonymity

• Iteration

• Controlled Feedback

• Aggregation of Group Response

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Anonymity & Iteration

• When experts express their opinion privately, they are free from group social pressures

• With iteration of questionnaire over a few rounds, participating experts have opportunity to change their opinions without loss of face in the eyes of remaining anonymous participating experts

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Controlled Feedback &

Aggregation of Group Response

• After each iteration of the questionnaire, opinions of each expert are summarized and each expert informed about the positions of other anonymous experts

• Feedback contains opinions/comments of all group members and not just the most vocal.

• After the final round, the group judgment is summarized (using average, quartile etc) so that each judgment receives equal weight.