Measuring Forecast Accuracy

Prepared by :
Jennifer Preston
 Agenda

1. Basic Concept

2. Quantity Accuracy

3. Time Accuracy

4. All in One
 Agenda – Basic Concept

1. Basic Concept

2. Quantity Accuracy

3. Time Accuracy

4. All in One
 Basic Concept

Forecast Error :

FE = Ai − Fi

Where :
Ai – the actual value in time period i
Fi – the forecast value in time period i
Dimensions of Forecast Accuracy

FORECAST ACCURACY

Quantity Time
Accuracy Accuracy
 Agenda – Quantity Accuracy

1. Basic Concept

2. Quantity Accuracy

3. Time Accuracy

4. All in One
 Quantity Accuracy
Common Measurements

• Mean Error
1 n Where :
FE = [∑ ( Ai − Fi )] FE : Forecast Error
n i =1 Ai : The actual value in time period i
Fi : The forecast value in time period i

• Mean Square Error

n
Where :
1
MSE = [∑ ( Ai − Fi )] 2 MSE : Mean Square Error
n i =1 Ai : The actual value in time period i
Fi : The forecast value in time period i
 Quantity Accuracy
Common Measurements

• Mean Absolute Deviation

Where :
1 n
MAD = ∑ Ai − Fi MAD : Mean Absolute Deviation
n i =1 Ai : The actual value in time period i
Fi : The forecast value in time period i

• Mean Absolute Percentage Error

Where :
1  n Ai − Fi
MAPE = ∑ × 100] MAPE : Mean Square Error
n  i =1 Ai Ai : The actual value in time period i
Fi : The forecast value in time period i
 Quantity Accuracy Calculation
(Under and Over Forecast)

Quantity Accuracy =

Where
N : 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 i
Ai : Corresponding actual quantity in period i
c : Weight factor related to over- and under-forecast, c > 1
 Quantity Accuracy Calculation
(Weight of Under and Over Forecast)

• If costs related to Forecast

Accurac
underforecast = costs related y

to overforecast, 100%

Overforecas
then C=2 t

0%
Forecaste
Order=A 2A
d
Underforecast
Quantity

• If costs related to Forecast

underforecast < costs related Accuracy

to overforecast, then 1<C<2 100%

Overforecast

0%

A CA Forecasted
Underforecast Quantity
 Agenda – Time Accuracy

1. Basic Concept

2. Quantity Accuracy

3. Time Accuracy

4. All in One
 Time Accuracy
(Different Time Shifting)

Forecast1 Forecast2 Forecast3 Forecast4 Forecast5

∆Τ 1 ∆Τ 2 ∆Τ 3 ∆ Τ4 ∆Τ 5

Actual1 Actual2 Actual3 Actual4 Actual5

Postpone Prepone
 Time Accuracy Calculation
(Post and Pre-poned Forecast)

 0 , if − TD ≥ ∆T


 1 + ∆T , if − TD ≤ ∆T ≤ 0
 TD
Time Accuracy = 
 ∆T
1 − TD , if 0 ≤ ∆T ≤ TD


 0 , if TD ≤ ∆T

Where
∆T : difference between the forecast time and the actual time
TD : time span for assigning greater-than-zero accuracy for a time shift
 Agenda – All in One

1. Basic Concept

2. Quantity Accuracy

3. Time Accuracy

4. All in One
 Total Forecast Accuracy

Combining Quantity and Time Accuracy :

Accuracy
Tolerance
100% Limits

c
Time Accuracy

0%
0% Quantity Accuracy 100%
Thank You