PRODUCTION AND OPERATIONS MANAGEMENT

FORECASTING ERRORS
Rajat Agrawal (rajatfdm@iitr.ac.in)
DEPARTMENT OF MANAGEMENT STUDIES

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 Forecast Errors
• Forecast Error =
Actual demand for period t – Forecast for period t

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 1 𝑁
• Average Error (AE) = 𝑡=1 𝑒𝑡
𝑁

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• Mean Absolute Deviation (MAD)
1 𝑁
• = 𝑡=1 𝑒𝑡
𝑁

• When the errors that occur in the forecast are normally

distributed, MAD relates to the Standard deviation as
1 Standard Deviation = 1.25 MAD
OR 1 MAD = 0.8 standard deviation
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• Mean Squared Error (MSE)

1 𝑁 2
• = 𝑒
𝑡=1 𝑡
𝑁

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• Mean absolute percentage Error (MAPE)
𝑁
1 𝑒𝑡
𝑋 100
𝑁 𝐷𝑡
𝑡=1

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 Tracking Signal
• It is a measurement that indicates whether
the forecast average is keeping pace with any
genuine upward or downward changes in
demand.

• TS = RSFE/ MAD
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Thank You

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