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2. 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 | |||
| Period | Demand | F1 | F2 |
| 1 | 68 | 60 | 63 |
| 2 | 75 | 71 | 60 |
| 3 | 70 | 75 | 70 |
| 4 | 74 | 69 | 73 |
| 5 | 69 | 71 | 77 |
| 6 | 72 | 66 | 77 |
| 7 | 80 | 72 | 77 |
| 8 | 78 | 73 | 85 |
a. Compute MAD for each set of forecasts. Given your results, which forecast appears to be more accurate? (Round your answers to 2 decimal place.)
| MAD F1 | |
| MAD F2 | |
(Click to select) F2 F1 None appears to be more accurate.
b. 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.)
| MSE F1 | |
| MSE F2 | |
(Click to select) F2 F1 None appears to be more accurate.
c. 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?
Either one might already be in use, familiar to users, and have past values for comparison. If (Click to select) tracking signals control charts are used, MSE would be natural; if (Click to select) control charts tracking signals are used, MAD would be more natural.
d. 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.)
| MAPE F1 | |
| MAPE F2 | |
Expert Answer
For F1:
MAD = 43/8 = 5.38
MSE = 259/(8-1) = 37
MAPE = 59/8 = 7.33
For F2:
MAD = 44/8 = 5.5
MASE = 398/(8-1) = 56.86
MAPE = 60/8 = 7.50
a) MAD is better for F2
b) MSE is better for F2
c) In case of past data, either MAD & MSE can be preferred. If tracking signal for MSE is used, MSE would be natural and in case of MAD tracking signal, MAD would be natural. MSE gives more weight to large errors whereas MAD gives equal weight. Also, MAD is easier to compute
d) MAPE is better for F2
