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A manager has been using a certain technique to forecast the demand for gallons of ice cream for the past six periods. Demand and forecast amounts are shown below the table below. The manager is now contemplating the use of the Naive method of forecasting. Would the Naive method forecast produce better results? For full credit show all steps and calculations.
Expert Answer
For comparing the accuracy level of the forecasting method, apply Mean Absolute deviation measure. MAD is given as average of all the absolute deviation of the forecasted periods.
| Period | Demand (A) | Actual Forecast (F) | Absolute deviation
AD = |A – F| |
| 1 | 90 | 87 | 3 |
| 2 | 85 | 88 | 3 |
| 3 | 91 | 87 | 4 |
| 4 | 92 | 89 | 3 |
| 5 | 95 | 90 | 5 |
| 6 | 88 | 92 | 4 |
| Total Absolute deviation | 22 | ||
| Average Absolute Deviation | 3.66667 | ||
According to the Naïve forecasting method, the forecast value of current period is equal to the actual demand of previous period.
| Period | Demand (A) | Naïve Forecast (F) | Absolute deviation
AD = |A – F| |
| 1 | 90 | ||
| 2 | 85 | 90 | 5 |
| 3 | 91 | 85 | 6 |
| 4 | 92 | 91 | 1 |
| 5 | 95 | 92 | 3 |
| 6 | 88 | 95 | 7 |
| Total Absolute deviation | 22 | ||
| Average Absolute Deviation | 4.4 | ||
MAD of Actual Forecasting method = 3.67
MAD of Naïve Forecasting method = 4.4
According to MAD criteria, lower the MAD, accurate is forecasting value.
As the MAD of actual method is less than Naïve method, manager should continue with the actual forecasting method.
