CHAPTER: 3

FORECASTING

Dr. Md. Tamzidul Islam

 Forecast Error
❑Two Types:
– Bias Errors
– Random Errors
• Forecast Error is the difference between the
forecast and actual demand for a given period.
Et=Dt-Ft

2
 Forecast Error
• Cumulative Forecasting Error (CFE)
• Mean Squared Error (MSE)
• Standard Deviation
• Mean Absolute Deviation (MAD)
• Mean Absolute Percentage Error (MAPE)

3
 Classroom Exercise
Period Actual Forecast Error Absolute Absolute Percentage
Demand Ft Et=Dt-Ft Error IEtI Error (IEt I/ Dt) (100%)
Dt
104 -24 24 30.0%
June 80
99 11 11 10.0
July 110
101 14 14 12.2
August 115
104 1 1 0.9
September 105
104 6 6 5.4
October 110
105 20 20 16.0
November 125
109 11 11 9.2
December 120

Total 39 87 83.7%

MAD=87/7=12.4 and MAPE=83.7%/7=11.9%

4
 Classroom Exercise

The following table shows the actual sales of a product and the
forecasts made for each of the last eight months. Calculate CFE, MAD,
MAPE, MSE and SD to measure forecasting error and comment on each
of the results:
Months Demand Forecast Error IEtI Error Absolute
(Dt) (Ft) (Et) squared percentage error
1 200 225 -25 25 625 12.5

2 240 220 20 20 400 8.3

3 300 285 15 15 225 5.0 CFE:-15

4 270 290 -20 20 400 7.4
MAD:195/8=24.4
MAPE:81.3/8=10.2%
5 230 250 -20 20 400 8.7
MSE: 5275/8=659.4
6 260 240 20 20 400 7.7 SD=√5275/8=25.7
7 210 250 -40 40 1600 19.0

8 275 240 35 35 1225 12.7

Total -15 195 5275 81.3% 5

6