Certified Production & Operations Manager (POM) Practice Exam

Putting forecast errors into perspective is best done using?

1. MAD

2. Hindsight

3. Linear decision rules

4. MAPE

The correct answer is: MAPE

When evaluating forecast errors, using Mean Absolute Percentage Error (MAPE) is particularly effective because it expresses errors as a percentage of the actual values, providing a clear perspective on how significant the errors are relative to the size of the data being forecasted. This normalization allows for easier comparability across different time periods and datasets, regardless of their scale. MAPE is widely used because it gives insights into forecast accuracy that are intuitive and actionable, helping organizations make informed decisions. In contrast, while Mean Absolute Deviation (MAD) quantifies forecast errors in absolute terms, it does not provide a percentage relative to the actual values, which can make it less useful for interpretation and comparison. Hindsight refers to analyzing past performance but does not directly measure forecast errors. Linear decision rules focus more on optimizing decision-making processes rather than specifically on forecast error measurement.