Instead of checking forecast accuracy one can check forecast error in absolute terms. Learn more about the negetive forecast accuracy

1. FAQs: Interpreting
negative forecast accuracy
Part - 3
Powerful Planning! Simplified

2. How do I interpret negative forecast
accuracy? Is there a way to differentiate over
and under forecasting while using absolute
percentage error?
Instead of checking forecast accuracy one can check
forecast error in absolute terms.
However if you are still looking at forecast accuracy and
encounter negative forecast accuracy then it shows that
the forecast was more than double of actuals.

3. The forecast accuracy formula is =
1-(abs(Forecast-Actual)/Actual), thus the numerator i.e.
abs(forecast-actual) is greater than actuals. When
(abs(forecast-actual)/actual)>1 only then we will have
negative forecast accuracy.
If we rearrange the equation then abs(forecast/actual-
1)>1 which can be further rearranged
abs(forecast/actual)>1+1 and finally we will arrive at
forecast>actual.

4. This situation can happen when we had planned for sale
but stock out happened because of insufficient supply, it
can happen due to various other factors as well like
some other product was launched which cannibalized
the sale of the current product.
Unfortunately there is no way to determine under and
over forecast if we are using absolute percentage error.
One can however categorise the error by creating
underforecast, overforecast bucket and then look at
absolute percentage error.

5. You can further read about how to evaluate forecast
errors in our blog :- https://anamind.com/exception-
reports-evaluate-error/

6. “There are two kinds of forecasters: those who
don’t know, and those who don’t know they don’t
know.”
- John Kenneth Galbraith

7. For better understanding on planning and
forecasting, you may enroll to our full training
Check the next slide >>

8. Thank You
To learn more about ‘Business Planning and
Forecasting’ enroll to full training at:
http://bit.ly/grab-your-udemy-coupon