Following points must be noted: a)Absolute deviation = Absolute difference ( i.e
ID: 372726 • Letter: F
Question
Following points must be noted:
a)Absolute deviation = Absolute difference ( i.e. no negative value ) between Demand and Forecast
b)Mean absolute Deviation ( MAD ) = Sum of Absolute Deviations / Number of observations
c) It is to be noted that lesser the MAD better it is because it indicates lesser deviation of forecast value from actual value
Accordingly please find the fill up values in the following table:
Month
Demand
Technique 1 - Forecast
Absolute deviation
Technique -2 Forecast
Absolute deviation
1
492
488
4
495
3
2
470
484
14
482
12
3
485
480
5
478
7
4
493
490
3
488
5
5
498
497
1
492
6
6
492
493
1
493
1
TOTAL:
28
34
Thus MAD for Technique -1 forecast = 28/6= 4.66
MAD for Technique – 2 forecast = 34/6 = 5.66
As reason explained above,
Since MAD for Technique 1 < MAD for Technique – 2 , it is concluded that Technique 1 provides better forecast
Month
Demand
Technique 1 - Forecast
Absolute deviation
Technique -2 Forecast
Absolute deviation
1
492
488
4
495
3
2
470
484
14
482
12
3
485
480
5
478
7
4
493
490
3
488
5
5
498
497
1
492
6
6
492
493
1
493
1
TOTAL:
28
34
Explanation / Answer
A car dealer must choose between two alternative forecasting techniques. Both techniques have been used to prepare forecasts for a six-month period. Using MAD as criterion, which technique provides a more accurate forecast? These are skill-building exercises. You should provide formulas, steps, or reasons to support your solutions. You must show how did you reach every number. Submissions with only the final solutions will not be given any credit.
Month Demand Technique 1 Forecast Technique 2 Forecast 470 X) 4 :