Which one of the following is used to determine accuracy in forecasting?Group of answer choicesLinear regressionRandomnessForecast as a percent of actualBiasnessMean absolute deviation
Question
Which one of the following is used to determine accuracy in forecasting?Group of answer choicesLinear regressionRandomnessForecast as a percent of actualBiasnessMean absolute deviation
Solution
The Mean Absolute Deviation (MAD) is used to determine accuracy in forecasting. Here's how you can calculate it:
- First, you need to have a set of actual data and corresponding forecasted data.
- For each data point, calculate the absolute difference between the actual and forecasted values. This is done by subtracting the forecasted value from the actual value and taking the absolute value of the result.
- Once you have the absolute differences for all data points, add them all up.
- Finally, divide the sum of absolute differences by the total number of data points. This gives you the Mean Absolute Deviation.
The smaller the MAD, the more accurate the forecast is considered to be. This is because a smaller MAD indicates that the forecasted values are closer to the actual values.
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