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Thread: Percentage Error calculation: what denominator to use for forecasting

  1. #1
    New Member
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    Mar 2018
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    Percentage Error calculation: what denominator to use for forecasting

    Hi, please can someone advise what denominator i should use when calculating percentage error for forecasting purposes. Do I use forecast value or actual value. I thought it was actual value.
    Thanks,

  2. #2
    Junior Member
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    Jan 2018
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    Toronto
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    Without knowing too much about the context, I would say actual value. Because generally speaking, what you're trying to figure out is the error in the forecast.

    E.g. if I'm forecasting temperature, and I say it's going to reach a daily high of 15 degrees Celsius tomorrow. The actual high was 13.5 degrees Celsius.

    Percentage error of the forecast = (forecast - actual)/actual = ?

    your error is forecast - actual = (15-13.5) = +1.5 (the forecast was 1.5 degrees too high)

    The percent error is 100 * (1.5/13.5) = 11.111%

    So, as a percentage of the true value, your forecast was 11.1% too high. This is the way of reporting things that makes the most sense to me.

    If you did the opposite, you'd compute -1.5/15 = -10%. Your true value was 10% lower than the forcasted value. This has meaning too, but is not really an error in the forecast. It's treating reality as a thing that deviated from the forecast.

  3. #3
    New Member
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    Mar 2018
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    Thanks, that makes sense.

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