12_posting_-_Forecasting_2

# 12_posting_-_Forecasting_2 - Forecasting 2 Trying to...

This preview shows pages 1–8. Sign up to view the full content.

10/15/2010 1 Forecasting 2 Trying to predict the future is like trying to drive down a country Trying to predict the future is like trying to drive down a country road at night with no lights while looking out the back window road at night with no lights while looking out the back window . Peter Drucker

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
10/15/2010 2 How can we compare across forecasting models? We need a metric that provides estimation of accuracy Forecast Error Forecast error = Difference between actual and forecasted value (also known as residual ) Errors can be: 1. biased (consistent) 2. random 3. combination
10/15/2010 3 Measuring Accuracy: MAD MAD = Mean Absolute Deviation It is the average absolute error in the observations 1. Higher MAD implies worse performance (higher deviation from forecast – VARIATION ). 2. If errors are normally distributed, then σ ε =1.25MAD (or 1 MAD = 0.8 σ ε )

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
10/15/2010 4 Measuring Accuracy: MAD 99.73% of all actual demand points should fall within + 3.75 MAD from forecast demand
10/15/2010 5 Measuring Accuracy: RSFE RSFE = Running Sum of Forecast Errors It is the sum of all errors (not absolute) in the observations Again, higher RSFE indicates worse performance (more deviation from forecast – BIAS )

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
10/15/2010 6 Measuring Accuracy: Tracking signal The tracking signal is a measure of how often our predictions have been above or below the actual value and the magnitude of the error MAD RSFE TS = Positive tracking signal: the actual value is above our predicted value Negative tracking signal: the actual value is below our predicted value
10/15/2010 7 Example: bottled water at Kroger Month Actual Forecast Jan 1,325 1370 Feb 1,353 1341 Mar 1,305 1322 Apr 1,275 1300 May 1,210

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

### What students are saying

• As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

Kiran Temple University Fox School of Business ‘17, Course Hero Intern

• I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

Dana University of Pennsylvania ‘17, Course Hero Intern

• The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

Jill Tulane University ‘16, Course Hero Intern