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Monitoring and Controlling Forecasts

This document discusses monitoring forecasts through tracking signals. It explains that a tracking signal measures how well forecasts are predicting actual values by calculating the difference between them. Positive tracking signals indicate actual demand was greater than forecast, while negative signals mean actual demand was lower. The goal is for tracking signals to center around zero, with balanced positive and negative errors. The document provides an example of calculating tracking signals for a bakery's croissant forecasts to determine if they are performing adequately.

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CHOSEN TABANAS
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460 views

Monitoring and Controlling Forecasts

This document discusses monitoring forecasts through tracking signals. It explains that a tracking signal measures how well forecasts are predicting actual values by calculating the difference between them. Positive tracking signals indicate actual demand was greater than forecast, while negative signals mean actual demand was lower. The goal is for tracking signals to center around zero, with balanced positive and negative errors. The document provides an example of calculating tracking signals for a bakery's croissant forecasts to determine if they are performing adequately.

Uploaded by

CHOSEN TABANAS
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PPTX, PDF, TXT or read online on Scribd
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Monitoring

and controlling
forecasts
Chosen T. Tabanas
Introduction
One way to monitor forecasts to ensure
that they are performing well is to
employ a tracking signal.

2
Tracking Signal

A Tracking signal is a measurement of how well a


forecast is predicting actual values.
Tracking Signal = Σ (Actual-
Forecast)
MAD

9/3/20XX Presentation Title 3


Note:
• Positive tracking signal (+) indicates that Demand is greater than
Forecast.
Negative tracking signal (-) means that Demand is less than Forecast.

• A good tracking signal- that is, one with a low Cumulative Error,
Σ (Actual- Forecast)

has about as much positive error as it has negative error. In other words,
small deviations are okay, but the positive and negative deviations
should balance so that the tracking signal centers closely around zero.

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Setting tracking limits is a matter of setting reasonable
values for upper and lower limits.
Figure
5.6
Plot of
Tracking
Signals

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How do firms decide what
the upper and lower
tracking limits should be?

There is no single answer, but they try


to find reasonable values—in other
words, limits not so low as to be
triggered with every small forecast
error and not so high as to allow bad
forecasts to be regularly overlooked
6
Note:
One (1) MAD is equivalent to approximately 0.8 standard
deviations, ±2 MADs = ±1.6 Standard deviations, ±3
MADs = ±2.4 Standard deviations, and ±4 MADs = ±3.2
Standard deviations. This fact suggests that for a forecast
to be “in control”, 89% of the errors are expected to fall
within ±2 MADs, 98% within ±3 MADs , and 99.9%
within ±4 MADs.
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Review:

Forecast Error= Actual - Forecast


MAD = Σ |Forecast Error|
n
Where:
n= number of periods
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EXAMPLE: Kimball’s Bakery wants to evaluate
performance of its “croissant” Forecast. Compute the
tracking
Qua Actual signal
Foreca for the forecast
Error and determine
Cumul Absolu whetherTracking
Cumul MAD
rter Dema arestperformingative
forecasts te
adequately. ative Signal
nd Deman Error Foreca Absolut
d st e
- - 10
Error 10
Forecas 10 -10/10 = -
10 10
-5 - t Error
15 1
5 7. -15/7.5= -
1 90 100 15 5
+1 0 10 2
15 30 0/10 = 0
2 95 100 5
- - 10 40 10 -10/10 = -
3 115 100 10 10
+1 +5 15 55 11 1
+5/11 =
4 100 110 5 +0.5
+3 +3 30 85 14 +35/14.2 =
5 125 110 0 5 .2 +2.5
6
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The way to get started is to
quit
talking and begin doing.
Walt Disney

9/3/20XX Presentation Title 11


TEAM

Name Name Name Name Name


Title Title Title Title Title

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Timeline

1 2 3 4 5

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