Question

Define several methods that are used to monitor and control forecasts for accuracy. Why is it necessary? Give an example using seasonal forecasts as a base.

Answer 1

The methods used for measuring the accuracy of the forecast are:

- Forecast bias- in this method the forecast is compared to the sales. It is positive if the forecast overestimates sales and a negative forecast bias if the forecast underestimates sales.

- MAD- Mean absolute deviation shows how large the error made in the forecast is.

- MAPE- Mean absolute percentage error shows the volume of the error in contrast to the sales. It shows the difference in the forecast from the sales on an average in units.

Forecasting is an important part of running a good business. Forecasting helps in planning and forming strategies for a future time which is not known to us. These forecasts cannot be done by mere intuition or instinct. They need to based on certain past data and present situations. Their accuracy is very important for the right planning and processing of operations that affect the business and its profits. Hence monitoring the accuracy of the forecast is necessary. Having forecasts done for the future course of action but all forecast actually fall far from the actual results then the forecasting process will be of no use and in fact an overhead for the business. Hence forecasting requires good control and monitoring for accuracy.