CPIM Practice Exam

Which forecasting method uses a correlated leading indicator as part of its analysis?

1. Qualitative forecasting method

2. Intrinsic forecasting method

3. Extrinsic forecasting method

4. Statistical forecasting method

The correct answer is: Extrinsic forecasting method

The correct choice employs correlated leading indicators in its analysis, which is characteristic of extrinsic forecasting methods. This approach identifies and utilizes external factors that can influence demand, such as economic indicators, market trends, or demographic shifts. By studying these external variables and their relationship to the trends in the data, businesses can anticipate future demand more accurately. Extrinsic forecasting relies on variables outside of the specific organization or historical data, often providing insights that intrinsic methods may overlook. For instance, if there is an economic upturn indicated by a leading employment statistic, this might correlate with increased consumer spending, thus informing better forecasting decisions for a business. Qualitative forecasting methods often rely on expert judgment or market research without the direct use of statistical indicators, while intrinsic forecasting focuses on internal data trends, such as historical sales patterns. Statistical forecasting relies on mathematical and statistical models to analyze past data trends, typically without integrating external correlated leading indicators.