Question

The following shows the performance of a forecasting method:

YEAR   ACTUAL DEMAND (units)   FORECAST (units)

1         3765     3821

2      3674   3615

3      3726           3758

Based on these information, the mean absolute deviation (MAD) for this forecasting method is

Answer 1

Mean absolute deviation of a data set refers to the average distance between each data value and its mean. It helps in calculating the absolute dispersion of the deviation, which is measured as the mean of the sum of absolute differences between actual demand and forecasted demand. Thus, the formula is,

Mean absolute deviation (MAD) = (Σ | D- F|)/n,

Where D represents the actual demand for each period,

F represents the forecasted demand for each period,

n represents the number of periods or observations.

Year	Actual Demand	Forecast	(D-F)	| D- F|
1	3765	3821	-56	56
2	3674	3615	59	59
3	3726	3758	-32	32
Sum	11165	11194	-29	147
Average	3721.67	3731.33	-9.67	49.00

Therefore,

MAD = (Σ | D- F|)/n = 147/3= 49.

Thus, the actual demand is 49 units on average, from the forecasted value.

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