By Steve Morlidge, Business Forecasting thought leader, author of "Future Ready: How to Master Business Forecasting" and "The Little Book of Beyond Budgeting"
The average level of MAPE for your forecast is 25%. So what? Is it good or bad? Difficult to say.
If it is bad, what should you do? Improve…obviously. But how?
The problem with simple measures of forecast accuracy is that it is sometimes difficult to work out what they mean and even trickier to work out what you need to do.
Bias, on the other hand, is a much easier thing to grasp.
Systematic under- or over-forecasting is straightforward to measure – it is simply the average of the errors, including the sign, and is clearly a ‘bad thing’. Whether you are using your forecasts to place orders on suppliers or using them to steer a business, everyone understands that a biased forecast is a bad news. Also, it is relatively easy to fix; find out what is causing you to consistently over or under estimate and stop doing it!
Steve Morlidge is an accountant by background and has 25 years of practical experience in senior operational roles in Unilever, designing, and running performance management systems. He also spent 3 years leading a global change project in Unilever.
He is a former Chairman of the European Beyond Budgeting Round Table and now works as an independent consultant for a range of major companies, specialising in helping companies break out of traditional, top-down ‘command and control’ management practice.
He has recently published ‘Future Ready: How to Master Business Forecasting’ (John Wiley 2010) and has a Ph.D. in Organisational Cybernetics at Hull Business School. He also cofounder of Catchbull, a supplier of forecasting performance management software.