Two forecasting methods use the same set of data to make forecasts. Method A has a...
Two forecasting methods use the same set of data to make forecasts. Method A has a lower MAD than method B. Will it also have a lower MAPE? Explain.
Homework Answers
To figure out which one will have a lower MAPE one must look at how both MAD and MAPE are calculated.
MAD is mean absolute deviation and is calculated by dividing the absolute deviation of actual and forecast sales of every period by the number of periods.
MAD = | actual - forecast | / n
MAPE is mean absolute percentage error and is calculated by the following formula:
MAPE = | actual - forecast | / (n*actual)
If you see the above two formula the only difference is MAPE has an extra 1/actual sales. This actual sales value is same for method A and method B. Hence given method A has a lower MAD value than method B it will also have a lowe MAPE value.
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