Question

Your forecast is, on average, incorrect by about 10 percent. The average demand is 130 units. What is the MAD?

Short answer

MAD = 13

Step-by-step solution

Definition of Mean Absolute Deviation (MAD)

The mean absolute deviation (MAD) is an average error within the forecasts, using absolute values. It's valuable because MAD, just like the variance, measures the dispersion of some observed value from some expected value. MAD is computed using the differences between the actual demand and the forecast demand without relation to signing. It equals the sum of the absolute deviations divided by the number of data points.

Explanation

(Mean Absolute Percent Error).

Mean = 130 units

(10% x 130 = 13 erroneous value)

At = 143 or 117, the absolute value

(143-130 = 13 or;

117-130 = -13)

Mean Absolute Deviation (MAD) is 13