Monday, August 24, 2015

Why is forecasting accuracy getting worse?

We hear it weekly..."our forecasting accuracy is getting worse. Can you help us make it better?"  I'd hate to be the analyst at these firms.  The questions suggest that management may not truly understand the nature and purpose of forecasting tools.  But, assuming accuracy is getting worse (perhaps indicated by a rising MAPE), let's look at what might be happening.

There are three reason your MAPE may be getting worse.  The first is that your product demand is becoming more volatile. In this case, you need a measure of the forecastability of your data. This will tell you how good a job your data will allow you to do.  The second is that your products are changing and this is impacting your forecasting technique. And, third, there is something going on in the competitive market to cause disruption to your demand.