CPIM Practice Exam

What is the formula for calculating MAD?

1. (Sum Of[Actual + Forecast])/number of periods

2. Sum Of[Actual-Forecast]/number of periods

3. Sum Of[Forecast - Actual]/number of periods

4. Sum of Absolute Deviations/ total periods

The correct answer is: Sum Of[Actual-Forecast]/number of periods

The mean absolute deviation (MAD) is a statistical measure used to evaluate the accuracy of a forecasting method. It is calculated by taking the average of the absolute differences between the actual values and the forecasted values. The key step in this process is recognizing that you need to sum the absolute deviations, which are calculated as the absolute differences between actual and forecasted values for each period. The correct approach to calculate MAD involves summing the absolute values of the deviations (the differences between actual and forecast values) and then dividing by the number of periods. This results in a measure that reflects the average magnitude of the errors in your forecasts, without considering their direction (whether they are over or under predictions). This understanding is critical for organizations seeking to improve their forecasting accuracy, as MAD provides a clear indication of forecasting performance over time. Using the correct calculation ensures that you have a reliable measure of forecast accuracy that can guide future forecasting efforts.