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What Does Negative Forecast Accuracy Mean | Anamind

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Instead of checking forecast accuracy one can check forecast error in absolute terms. Learn more about the negetive forecast accuracy

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What Does Negative Forecast Accuracy Mean | Anamind

  1. 1. FAQs: Interpreting negative forecast accuracy Part - 3 Powerful Planning! Simplified
  2. 2. How do I interpret negative forecast accuracy? Is there a way to differentiate over and under forecasting while using absolute percentage error? Instead of checking forecast accuracy one can check forecast error in absolute terms. However if you are still looking at forecast accuracy and encounter negative forecast accuracy then it shows that the forecast was more than double of actuals.
  3. 3. The forecast accuracy formula is = 1-(abs(Forecast-Actual)/Actual), thus the numerator i.e. abs(forecast-actual) is greater than actuals. When (abs(forecast-actual)/actual)>1 only then we will have negative forecast accuracy. If we rearrange the equation then abs(forecast/actual- 1)>1 which can be further rearranged abs(forecast/actual)>1+1 and finally we will arrive at forecast>actual.
  4. 4. This situation can happen when we had planned for sale but stock out happened because of insufficient supply, it can happen due to various other factors as well like some other product was launched which cannibalized the sale of the current product. Unfortunately there is no way to determine under and over forecast if we are using absolute percentage error. One can however categorise the error by creating underforecast, overforecast bucket and then look at absolute percentage error.
  5. 5. You can further read about how to evaluate forecast errors in our blog :- https://anamind.com/exception- reports-evaluate-error/
  6. 6. “There are two kinds of forecasters: those who don’t know, and those who don’t know they don’t know.” - John Kenneth Galbraith
  7. 7. For better understanding on planning and forecasting, you may enroll to our full training Check the next slide >>
  8. 8. Thank You To learn more about ‘Business Planning and Forecasting’ enroll to full training at: http://bit.ly/grab-your-udemy-coupon

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