Sometimes these two calculations are the same. The forecast error calculation you just did is in H. Calculate the error percentage by dividing F2/G2.Īs shown above, the traditional forecast error calculation is in E.Size of opportunity for negative consequences.For column G, use the MAX function to find what is larger: forecast or actuals. Missing a 1,000-unit sale is much worse than missing a 2-unit sale. Calculate the divisor (which is what I call the "Size of the opportunity to mess up").Figure out the absolute size of the error.Use the ABS function to returns the absolute value of a number. Whether the forecast was high or low, the error is always a positive number, so calculate the absolute error on a product-by-product basis.To calculate forecast accuracy using my formula, you follow these steps: You take the absolute value of (Forecast-Actual) and divide by the larger of the forecasts or actuals. You need a formula for forecast accuracy that treats both of these situations as equally bad. This means the product cost could double and your profits go away. On the other side, if you forecast 0 units and an order for 400 shows up, the plant has to scramble and start buying material on the gray market. If you forecast 400 units and the order does not show up, then the manufacturing plant has 400 sets of material on hand and nowhere to send them. However, there are two kinds of problems in forecasting. Most agree that (F-A)/F is the measure of error.Strategy: A lot of forecasting professionals measure forecast error as (Forecast-Actual)/Forecast. I collect forecasts from the sales reps and attempt to turn them into a production plan for the manufacturing plant. Problem: I handle forecasting for my company.
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