BY TEAM 10SAMRAT

RAJKUMARVIKRAMJASPREET

Methods of Measuring Forecasting Errors

Meaning of Forecasting

Meaning of forecasting Errors

Importance of Forecasting

Measures of Aggregate Error

Problem on Aggregate Error

Conclusion

Contents

Forecasting is the process of making statements about events whose actual outcomes (typically) have not yet been observed.

The forecast error is the difference between the actual value and the forecast value for the corresponding period.

Et = Yt – Ft

where E is the forecast error at period t, Y is the actual value at period t, and F is the forecast for period t.

Meaning of Forecasting and Forecasting Errors

Forecast error can be a calendar forecast error or a cross-sectional

forecast error, when we want to summarize the forecast error over a

group of units

If we observe the average forecast error for a time-series of forecasts for

the same product or phenomenon, then we call this a calendar forecast

error or time-series forecast error.

If we observe this for multiple products for the same period, then this is

a cross-sectional performance error.

Forecasting Error

If we observe this for multiple products for the same period, then this is a cross-

sectional performance error.

While forecasts are never perfect, they are necessary to prepare for actual

demand. In order to maintain an optimized inventory and effective supply chain,

accurate demand

Calculating forecast error

The forecast error needs to be calculated using actual sales as a base. There are

several forms of forecast error calculation methods used, namely Mean Percent

Error, Root Mean Squared Error, Tracking Signal and Forecast Bias..

Importance of Forecasting

Sum of Forecasting Errors(SFE) ∈(e)

Mean Absolute Deviation ( MAD)

1÷n (∈(|e|)

Mean Absolute Percentage Error ( MAPE)

1÷n (∈(|e|÷D× 100 )

Tracking Signal( TS) SFE÷ MAD

Measures of aggregate error:

The table below has the data pertaining to actual demand and forecast. Compute the forecasting accuracy at the end of 3rd period and 6th period. Compute the Tracking Signal at the end of each period.

Also compute Tracking Signal at the end of each period and plot it on a graph and give your comments?

Problem

Period 1 2 3 4 5 6

Demand 120 114 130 124 97 95

Forecast 109 118 132 110 110 105

Forecasting helps managers and businesses develop meaningful plans and reduce

uncertainty of events in the future.

Managers want to match supply with demand; therefore, it is essential for them to

forecast how much space they need for supply to each demand. Forecasting is a

statement pertaining to the future value of a variable of interest.

Its crucial for good forecasting to be reliable, cost effective, simple and concise. Its very

important for a forecast to be correct and that their be as few errors as possible.

Conclusion