Forecasting in Operations Management

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The topic of forecasting is critical to operations management since forecasting allows managers to plan future budgets and operations. This discussion is primarily focused on qualitative forecasting methods. However, it is also essential to define and explain quantitative forecasting. According to Sharma (2015), quantitative forecasting is using historical data to project future demand, sales, and revenues. This method involves intrinsic and extrinsic techniques (Sharma, 2015). The choice of forecasting method depends on a company’s goals and objectives.

For example, quantitative forecasting is useful when there is plenty of historical data. Well-established companies expecting no significant market changes shortly can use quantitative forecasting tools to project sales and demand. A considerable advantage of quantitative forecasting is that it is highly accurate due to the use of statistical modeling and trend analysis (Ashe-Edmunds, 2018). Quantitative forecasting is limited by the fact that it relies on historical data and does not account for serious and unpredictable market changes, as well as for the shifts in internal operations of the company.

Qualitative forecasting, on the other hand, also has some important benefits. It relies on the knowledge and experience of experts in the field, which increases its predictive ability (Basu, n.d.). Moreover, qualitative forecasting is flexible and can be applied to many types of businesses, including new ones. Nonetheless, data obtained through the qualitative method might be subject to bias due to selective perception, which makes it less accurate than objective, quantitative data (Basu, n.d.). Therefore, companies should weigh the risks and benefits of both methods before choosing one. Some companies might also decide to use a combination of the two methods to achieve maximum benefit.