Measuring Forecast Accuracy

Prepared by :

Jennifer PrestonJennifer Preston

Agenda

1. Basic Concept1. Basic Concept

2. Quantity Accuracy2. Quantity Accuracy

3. Time Accuracy3. Time Accuracy

4. All in One4. All in One

Agenda – Basic Concept

1. Basic Concept1. Basic Concept

2. Quantity Accuracy2. Quantity Accuracy

3. Time Accuracy3. Time Accuracy

4. All in One4. All in One

Basic Concept

Forecast Error :

Where :Ai – the actual value in time period i

Fi – the forecast value in time period i

ii FAFE

Dimensions of Forecast Accuracy

FORECAST ACCURACY

Quantity Accuracy

Time Accuracy

Agenda – Quantity Accuracy

1. Basic Concept1. Basic Concept

2. Quantity Accuracy2. Quantity Accuracy

3. Time Accuracy3. Time Accuracy

4. All in One4. All in One

Quantity Accuracy Common Measurements

• Mean ErrorWhere :FE : Forecast ErrorAi : The actual value in time period iFi : The forecast value in time period i

• Mean Square ErrorWhere :MSE : Mean Square ErrorAi : The actual value in time period iFi : The forecast value in time period

i

)]([1

1

n

iii FA

nFE

2

1

)]([1

n

iii FA

nMSE

Quantity Accuracy Common Measurements

• Mean Absolute DeviationWhere :MAD : Mean Absolute DeviationAi : The actual value in time period iFi : The forecast value in time period

i

• Mean Absolute Percentage ErrorWhere :MAPE : Mean Square ErrorAi : The actual value in time period iFi : The forecast value in time period

i

n

iii FA

nMAD

1

1

1001

1

n

i i

ii

A

FA

nMAPE

Quantity Accuracy Calculation (Under and Over Forecast)

Quantity Accuracy =

WhereN : Set of forecast quantity related to an actual quantity n= 1, 2, 3 ....... N. Fn_i : Forecast quantity number n related to an actual quantity in period iAi : Corresponding actual quantity in period ic : Weight factor related to over- and under-forecast, c > 1

Quantity Accuracy Calculation(Weight of Under and Over Forecast)

• If costs related to underforecast = costs related to overforecast,

then C=2

• If costs related to underforecast < costs related to overforecast, then 1<C<2

Order=A

100%

0%

Forecast Accuracy

Forecasted Quantity

2A

Overforecast

Underforecast

A

100%

0%

Forecast Accuracy

Forecasted Quantity

CA

Overforecast

Underforecast

Agenda – Time Accuracy

1. Basic Concept1. Basic Concept

2. Quantity Accuracy2. Quantity Accuracy

3. Time Accuracy3. Time Accuracy

4. All in One4. All in One

Actual3 Actual4 Actual5

Forecast3 Forecast4 Forecast5

DT4 DT5DT3

Actual2

Forecast2

DT2

Actual1

DT1

Forecast1

Time Accuracy (Different Time Shifting)

PreponePostpone

Time Accuracy Calculation(Post and Pre-poned Forecast)

Time Accuracy =

WhereDT : difference between the forecast time and the actual timeTD : time span for assigning greater-than-zero accuracy for a time shift

D

DD

DD

D

TTDif

TDTifTD

T

TTDifTD

T

TTDif

, 0

0,1

0,1

, 0

Agenda – All in One

1. Basic Concept1. Basic Concept

2. Quantity Accuracy2. Quantity Accuracy

3. Time Accuracy3. Time Accuracy

4. All in One4. All in One

Combining Quantity and Time Accuracy :

0% 100%Quantity Accuracy

0%

100%

Tim

e A

ccur

acy

c

c

Accuracy Tolerance

Limits

c

Total Forecast Accuracy

c

c

Thank You