Problem 3-21 Two different forecasting techniques (F1 and F2) were used to forec
ID: 407920 • Letter: P
Question
Problem 3-21
Two different forecasting techniques (F1 and F2) were used to forecast demand for cases of bottled water. Actual demand and the two sets of forecasts are as follows:
PREDICTED DEMAND
Compute MAD for each set of forecasts. Given your results, which forecast appears to be more accurate? (Round your answers to 2 decimal place.)
Compute the MSE for each set of forecasts. Given your results, which forecast appears to be more accurate? (Round your answers to 2 decimal places.)
In practice, either MAD or MSE would be employed to compute forecast errors. What factors might lead a manager to choose one rather than the other?
Compute MAPE for each data set. Which forecast appears to be more accurate? (Round your intermediate calculations to 2 decimal places and and final answers to 2 decimal places.)
Two different forecasting techniques (F1 and F2) were used to forecast demand for cases of bottled water. Actual demand and the two sets of forecasts are as follows:
Explanation / Answer
a)
Hence, F2 is more accurate.
b)
F2 appears to be more accurate.
c)
The manager should use MAD (mean absolute deviation) if he/she wants forecasts that are the medians of the future distributions conditional on past observations.
The manager should use MSE (mean squared error) if he/she wants forecasts that are the means of the future distributions conditional on past observations.
MSE puts a lot of weight on the errors by squaring the value, i.e. it makes the errors more visible but calculating MAD is simpler method than MSE. Hence the manager should make a decision keeping that in mind.
d)
Hence, F2 appears to be more accurate
Period Demand F1 Actual - Forecast |Actual - Forecast| F2 Actual - Forecast |Actual - Forecast| 1 68 62 6.00 6.00 67 1.00 1.00 2 75 69 6.00 6.00 68 7.00 7.00 3 70 72 -2.00 2.00 70 0.00 0.00 4 74 66 8.00 8.00 70 4.00 4.00 5 69 73 -4.00 4.00 72 -3.00 3.00 6 72 65 7.00 7.00 76 -4.00 4.00 7 80 74 6.00 6.00 79 1.00 1.00 8 78 74 4.00 4.00 85 -7.00 7.00 MAD 5.38 MAD 3.38Related Questions
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