CPIM Practice Exam

How is the tracking signal formula expressed?

1. Sum of forecast values/MAD

2. Algebraic sum of forecast deviations/MAD

3. Cumulative forecast/actual ratio

4. Deviation/Actual Demand

The correct answer is: Algebraic sum of forecast deviations/MAD

The tracking signal is an important metric used to assess the accuracy of a forecasting method by comparing the cumulative forecast deviations to the mean absolute deviation (MAD). It evaluates whether the forecasting process is producing reliable results over time. The correct formula for the tracking signal is the algebraic sum of the forecast deviations divided by the mean absolute deviation (MAD). This allows for monitoring both the direction and magnitude of the forecast errors over a specified period. By using the algebraic sum of deviations, the tracking signal can indicate whether forecasts are consistently over or underestimating actual demand, which is crucial for making improvements in the forecasting process. In contrast, other options do not accurately describe this relationship. For example, the sum of forecast values divided by MAD does not provide a proper context for measuring forecast accuracy. Similarly, a cumulative forecast/actual ratio does not reflect the deviations necessary for the tracking signal's purpose. Lastly, using deviation divided by actual demand also lacks the necessary context provided by the MAD component, which is integral to this evaluation.