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Unit 4 of 4 · MBA Sem 4

Unit 4: Qualitative techniques and accuracy

Business Forecasting notes · PTU syllabus (MBA 964-18)

3 min read6 topics10 exam questions
On this page
  1. Unit summary
  2. Survey and opinion polling techniques
  3. Exponential smoothing
  4. Barometric techniques
  5. Diffusion and composite indexes
  6. Accuracy of forecasts
  7. Forecasting software
  8. Key terms
  9. Quick revision
  10. Important questions

Unit summary

Qualitative and barometric methods add judgement and economic signals to forecasting, and accuracy must be measured. This unit covers survey and opinion polling techniques, exponential smoothing, barometric techniques, leading, lagging and coincident indicators, diffusion and composite indexes, accuracy of forecasts and forecasting software.

After this unit you can

  • Apply survey and opinion polling techniques
  • Apply exponential smoothing methods
  • Use barometric techniques and economic indicators
  • Measure forecast accuracy and use forecasting software

PTU syllabus topics

  • Survey and opinion polling techniques
  • exponential smoothing
  • barometric techniques
  • leading/lagging/coincident economic indicators
  • diffusion and composite indexes
  • accuracy of forecasts
  • use of forecasting software
Key formulasForecast accuracy

  • MAD

    Σ abs(actual − forecast) / n

  • MSE

    Σ (actual − forecast)² / n

  • MAPE

    Σ abs(error / actual) / n × 100

  • Exponential smoothing

    Ft+1 = α At + (1 − α) Ft

1

Topic 1

Survey and opinion polling techniques

ClassificationJudgemental methods
Qualitative techniques

  • Jury of executive opinion

    Senior managers' combined views

  • Sales force composite

    Salespeople forecast their territories

  • Survey of buyers' intentions

    Customers asked about purchase plans

  • Delphi method

    Anonymous expert rounds converging on a forecast

  • Expert panels and scenario writing

    Alternative futures

  • Strengths: use market knowledge, work without data; weaknesses: bias, optimism, group pressure.
2

Topic 2

Exponential smoothing

Key formulasExponential smoothing family

  • Simple

    Ft+1 = α At + (1 − α) Ft

  • Holt's (trend)

    Level and trend each smoothed

  • Holt–Winters

    Level, trend and seasonal components

  • Choosing α: high α reacts quickly to change; low α smooths noise; choose to minimise forecast error.
3

Topic 3

Barometric techniques

  • Barometric forecasting: uses economic indicators whose movements precede, coincide with or follow business cycles to predict turning points.
ComparisonEconomic indicators
Timing
Examples

Leading indicators

Change before the economy turns

PMI, new orders, stock prices, building permits, yield curve

Coincident indicators

Move with the economy

Industrial production (IIP), GST collections, employment

Lagging indicators

Change after the economy turns

Unemployment rate, inflation, interest rates

4

Topic 4

Diffusion and composite indexes

  • Diffusion index: percentage of a group of indicators that are rising — above 50% suggests expansion.
  • Composite index: weighted average of several indicators combined into one series (e.g., Conference Board leading index; OECD composite leading indicators for India).
Key formulasDiffusion index

  • Diffusion index

    Number of rising indicators ÷ total indicators × 100

Example

If 7 of 10 leading indicators rise this month, the diffusion index is 70% — signalling likely expansion.

5

Topic 5

Accuracy of forecasts

Key formulasAccuracy measures

  • MAD

    Mean absolute deviation

  • MSE and RMSE

    Mean squared error and its square root

  • MAPE

    Mean absolute percentage error

  • Theil's U

    Compares the forecast with a naive no-change forecast — below 1 is better than naive

  • Tracking signal

    Detects bias

  • Good practice: hold-out testing, combining forecasts, monitoring and updating, recording assumptions.
6

Topic 6

Forecasting software

  • Tools: Excel (FORECAST.ETS, Forecast Sheet, Data Analysis ToolPak), R (forecast, fable packages), Python (statsmodels, Prophet), SPSS and EViews, SAP IBP and other demand planning systems, AutoML platforms.

Key terms

Delphi method
Anonymous expert consensus technique
Holt–Winters
Exponential smoothing with trend and seasonality
Leading indicator
Indicator that changes before the economy
Diffusion index
Share of indicators rising
Theil's U
Accuracy relative to a naive forecast

Quick revision

  • Jury of executive opinion, sales force composite, buyer surveys, Delphi.
  • Simple, Holt's and Holt–Winters smoothing; choosing α.
  • Leading, coincident, lagging indicators with Indian examples.
  • Diffusion and composite indexes.
  • MAD, RMSE, MAPE, Theil's U, tracking signal; software.

Important exam questions

Practice questions written to the PTU exam pattern for this unit's syllabus: short answers (Section A style) and long answers (Sections B and C style).

Short-answer questions

  1. Q1.What is the Delphi method?
  2. Q2.State the simple exponential smoothing formula.
  3. Q3.Give two leading indicators.
  4. Q4.What is a diffusion index?
  5. Q5.What does Theil's U below 1 indicate?
  6. Q6.Name two forecasting software tools.

Long-answer questions

  1. Q1.Explain survey and opinion polling techniques of forecasting.
  2. Q2.Explain exponential smoothing methods.
  3. Q3.Discuss barometric techniques and leading, lagging and coincident indicators.
  4. Q4.Explain measures of forecast accuracy and the use of forecasting software.

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