Question

A particular forecasting model was used to forecast six months. Here are the forecasts and actual demands that resulted:

Months	Forecast	Actual
April	250	200
May	325	250
June	400	325
July	350	300
August	375	325
September	450	400

Find the tracking signal and state whether you think the model being used is giving acceptable answers.

Short answer

The forecasting model is used to predict demand, supply, and pricing within the business. It involves investigating the competition, collecting supplier data, and analysing past patterns to predict the long run of the business.

Step-by-step solution

Tracking signal

The tracking signal could be a measurement criterion that describes whether the forecast average is keeping pace with any genuine upward or downward changes in demand. When a forecast is consistently low or high, it's noted as a biased forecast.

Explanation

Tracking signal -A tracking signal (TS) can be calculated using the arithmetic sum of forecast deviations divided by the mean absolute deviation:

TS = RSFE/MAD

RSFE = the running sum of forecast errors

MAD = the average of all the forecast errors

The graph is shown below:

FE (Forecast Error), is the difference between subtracting the forecast demand from the actual demand.

FE = Actual - Forecast

RSFE (Running sum of the forecast error), is the cumulative value of the values obtained in the forecast error.

AFE (Absolute Forecast Error), is the absolute value of the forecast errors.

RSAFE (Running sum of the absolute forecast error), is the cumulative value of the values obtained in the absolute forecast error.

MAD (Mean absolute deviation), is the sum of all the absolute forecast errors over several periods.

TS(Tracking Signal), is an indicator of whether the upward or downward changes in the demand are genuine or acceptable

The rule of thumb states that as long as the tracking signal is between -3 and 3, the model is working correctly. However, in this model, there are -4, -5, and -6 tracking signals that make this model unacceptable or are not working correctly.