Chapter 4 Part 6

Chapter 4 Part 6 - Agenda Assignment Times Series...

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1 1 Agenda • Assignment • Times Series Forecasting Models (Chapter 4) 2 Demand Forecasting Chapter 4 (Part 6)
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2 3 The ultimate goal of any forecasting endeavor is to have an accurate and unbiased forecast. The cost associated with prediction error can be substantial and include the cost of lost sales, safety stock, unsatisfied customers, and loss of goodwill. According to a recent survey, only 18% of the surveyed companies had forecast accuracy exceeding 90%. Forecasting Accuracy 4 Forecast Error Forecast error , which is the difference between actual demand and the forecast, is used to evaluate the accuracy of a forecasting model. Error (E t ) = Actual t Forecast t = A t F t For all measures of forecast accuracy, the closer the measure is to zero , the better the forecast.
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3 5 Absolute measures of forecast accuracy These measures are expressed in the same unit of measurement as the data. Relative measures of forecast accuracy These measures provide a perspective of the magnitude of the forecast error relative to actual demand. For example, an absolute forecast error of 10 is better when the actual demand is 1000 than when the actual demand is 100. Measures of Forecast Accuracy 6 Common absolute measures to evaluate forecast accuracy are: Running Sum of Forecast Error (RSFE) Mean Forecast Error (MFE) Mean Absolute Deviation (MAD) Mean Squared Error (MSE) Absolute Measures of Forecast Accuracy
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Chapter 4 Part 6 - Agenda Assignment Times Series...

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