Judgmental Forecasting

Unavailability of data drives business executives to adopt judgmental forecasting techniques. One such method is the Delphi method.

What is Delphi Method

The Delphi Technique is a method used to estimate the likelihood and outcome of future events by using knowledge of subject domain experts. It seeks to gain consensus using a series of questionnaires and is especially useful when researchers need to collect ideas from isolated experts on a specific topic and establish agreement to discover the underlying assumptions or perspectives among the experts. Delphi technique is “a method for structuring a group communication process so that the process is effective in allowing a group of individuals, as a whole, to deal with a complex problem"

When to use Delphi Method

• Unaivailibity of historical data on the subject
• The need for experts' judgment
• Group consensus to achieve the results
• Lack of consensus and imperfect knowledge
• Experienced and capable experts
• Dispersion of experts, no time limitation, and lack of cost-effective method

Steps to executing the Delphi Method

1. Problem statement
2. Choose a facilitator
3. Composition of an expert panel team.
4. The facilitator shares a questionnaire’s in order to gather expert opinions.
5. A group of experts exchanges views, and each independently gives estimates and assumptions to a facilitator who reviews the data and issues a summary report.
6. The facilitator determines the level of consensus.
7. The group members discuss and review the summary report, and give updated forecasts to the facilitator, who again reviews the material and issues a second report.
8. This process continues until all participants reach a consensus.

Delphi Method Considerations

• The panel size may vary according to the topics covered, the nature of different viewpoints included, and the time and money available.
• Use a combination of individuals with multiple specialties and heterogeneous groups better than the homogeneous groups.
• Subjects should be highly trained and competent within the specialized area of knowledge related to the target issue.
• Delphi panel is done with the participation of individuals who have the knowledge and expertise of the study subject known as the Delphi panel.
• Use Five-point or seven-point scale to determine the importance or screening of items i.e. "extremely agree”, Agree, Neither Agree nor Disagree, Disagree and "extremely disagree"
• 3-10 rounds are adequate at reaching consensus

Advantage over face to face interviews

1. Alleviates some of the bias inherent in group meetings such as:
   1. Dominant individuals who won’t get a chance to exercise their personality.
   2. The unwillingness of many people to defend their views, even well-founded ones would be a thing of the past.
   3. Participants can change their minds anonymously
2. Eliminates need for group meetings

Weakness of the Delphi approach

1. Can take a lot of time to reach consensus
2. Participants may drop out