A technique used to observe the accuracy of a forecasting mannequin entails evaluating precise outcomes to predicted values. This comparability generates a statistic that signifies whether or not the forecast is persistently over- or under-predicting. The computation usually entails dividing the cumulative sum of forecast errors by the imply absolute deviation (MAD). For instance, if the sum of forecast errors is 100 and the MAD is 20, the ensuing worth could be 5, indicating a possible bias within the forecasting mannequin.
This metric is vital as a result of it gives an easy approach to assess forecast validity. A worth near zero suggests an unbiased forecast, whereas a price considerably totally different from zero might point out systematic error. Monitoring this worth over time might help organizations enhance their forecasting processes, main to raised useful resource allocation, stock administration, and decision-making. Traditionally, its use has been prevalent in manufacturing and provide chain administration, however its software extends to numerous fields the place correct forecasting is essential.