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  • Measures of Forecast Error

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    Ritam Ghosh
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    Forecast error is measured in different ways, including as an absolute value or percentage. It is the difference between actual and forecast demand. Demand has both systematic and random components. Systematic includes trends, seasonality, and current levels while random includes things like natural disasters. Bias measures consistent over or under forecasting as the cumulative forecast differs from actuals. Forecast accuracy is measured using metrics like mean squared error (MSE), mean absolute deviation (MAD), and mean absolute percentage error (MAPE). Lower values indicate better accuracy.

    Original Description:

    error analysis in demand forecasting

    Original Title

    Error analysis

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    Forecast error is measured in different ways, including as an absolute value or percentage. It is the difference between actual and forecast demand. Demand has both systematic and random components. Systematic includes trends, seasonality, and current levels while random includes things like natural disasters. Bias measures consistent over or under forecasting as the cumulative forecast differs from actuals. Forecast accuracy is measured using metrics like mean squared error (MSE), mean absolute deviation (MAD), and mean absolute percentage error (MAPE). Lower values indicate better accuracy.

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    © All Rights Reserved
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    4 views12 pages

    Measures of Forecast Error

    Uploaded by

    Ritam Ghosh
    Forecast error is measured in different ways, including as an absolute value or percentage. It is the difference between actual and forecast demand. Demand has both systematic and random components. Systematic includes trends, seasonality, and current levels while random includes things like natural disasters. Bias measures consistent over or under forecasting as the cumulative forecast differs from actuals. Forecast accuracy is measured using metrics like mean squared error (MSE), mean absolute deviation (MAD), and mean absolute percentage error (MAPE). Lower values indicate better accuracy.

    Copyright:

    © All Rights Reserved
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    Flag for inappropriate content
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    of 12

    Measures of

    forecast error
    Forecast error is
    the difference
    between actual
    demand and
    services

    forecast demand,
    timeline
    history
    follow

    teams

    about
    stated as an
    absolute value or
    as a percentage
    Observed demand (O) = systematic component (S)
    + random component (R)

    Systematic Random

    Demand
    services

    timeline
    follow

    Components of
    teams

    about
    Examples of Random
    systematic demand
    Component
    • Level (current
    deseasonalized • Natural Disasters
    demand) • Recession
    • Trend (growth or
    decline in demand)
    • Seasonality
    (predictable seasonal
    fluctuation)
    follow
    services
    teams
    timeline

    about
    Demand
    Bias Random

    Reasons
    • Bias is a consistent
    services

    timeline
    follow

    teams

    about
    deviation from the mean in
    Examples of Random
    one direction (high or low).
    A normal property of a Component
    good forecast is that it is
    not biased. • Natural Disasters
    • Recession
    • Bias exist when the
    cumulative actual demand
    differs from the
    cumulative actual
    forecast.
    1 2

    ???
    services

    timeline
    follow

    teams

    Check validity

    about
    Preparing a

    Why
    of forecasting contingency
    method plan of action
    MSE MAD

    timeline
    history
    about
    Average of the
    squares of the errors Average of the
    over n periods modulus of the errors
    over n periods
    2 Forecast method has the following error sequence:

    Forecast Method 1 = 10,12,9,9


    Forecast Method 2 = 1,3,2,20

    history
    about
    Error
    MSE MAD
    Forecast Method 1 = 101.5 Forecast Method 1 = 10
    Forecast Method 2 = 103.5 Forecast Method 2 = 6.5
    follow
    services
    teams Mean Absolute Percentage Error

    Error
    history
    about
    2 Forecast method has the following error sequence:

    Forecast Method 1 = 190, 200, 245, 180


    Forecast Method 2 = 100, 120, 500, 100
    services

    timeline
    history
    Average demand during the 4 quarters are 1000, 1200,
    follow

    teams

    about
    4800,1100

    Results
    MSE – Method 1 is better
    MAD – Method 1 is better
    MAPE – Method 1 =14.3%
    Method 2 = 9.9%(better)
    Tracking Signal
    services

    history
    follow

    teams

    about
    Tracking
    Signal
    Tracking Signal acceptable if it is between +- 6

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