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    Selecting the Best Method Using Mean Absolute Deviation

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    A company is comparing the accuracy of two different forecasting methods. Use MAD to compare the accuracies of these methods on the five weeks of sales. Which method provides greatest forecast accuracy?

    Method A Method B
    Week Actual Sales Forecast Forecast
    1 25 30 30
    2 18 20 16
    3 26 23 25
    4 28 29 30
    5 30 25 28

    © BrainMass Inc. brainmass.com December 24, 2021, 11:34 pm ad1c9bdddf
    https://brainmass.com/business/project-management/selecting-best-method-mean-absolute-deviation-581708

    SOLUTION This solution is FREE courtesy of BrainMass!

    Steps in MAD computation:
    1. Treat each method separately.
    2. Compute for the Error for Method A. This can be done by subtracting the Actual Sale with Method A forecast.
    3. Get the absolute error to remove the negative signs.
    4. Compute the mean of the absolute error, the result of which will be the MAD.
    5. Do the same for Method B.
    6. Compare the MAD for both methods. The one with the smallest MAD is the most accurate forecast.

    Solution:

    Week Actual Sales Method A Forecast Method B Forecast Error for Method A Absolute Error for Method A
    1 25 30 30 -5 5
    2 18 20 16 -2 2
    3 26 23 25 3 3
    4 28 29 30 -1 1
    5 30 25 28 5 5
    Total 16
    MAD = 3.2

    Week Actual Sales Method A Forecast Method B Forecast Error for Method B Absolute Error for Method B
    1 25 30 30 -5 5
    2 18 20 16 2 2
    3 26 23 25 1 1
    4 28 29 30 -2 2
    5 30 25 28 2 2
    Total 12
    MAD = 2.4

    Decision: The computed MAD for Method A is 3.2 while for Method B, 2.4
    The rule of thumb is that a lower MAD means a more accurate forecast.
    Method B is the most accurate forecast.

    Note: Please see the attached file.

    This content was COPIED from BrainMass.com - View the original, and get the already-completed solution here!

    © BrainMass Inc. brainmass.com December 24, 2021, 11:34 pm ad1c9bdddf>
    https://brainmass.com/business/project-management/selecting-best-method-mean-absolute-deviation-581708

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