You are hired as a consultant to advise a small firm on forecasting methodology. Based on your research, you find the company has a MAD of 3. It wants to have a 99.7 percent control limits on its forecasting system. Its most recent tracking signal value is 15. What should be your report to the company?
A) The forecasting model is operating acceptably.
B) The forecasting model is out of control and needs to be corrected.
C) The MAD value is incorrect.
D) The upper control value is less than 20.
E) The company is using an inappropriate forecasting methodology.

Question

Quizplus · Accepted Answer

A MAD of 3 is an acceptable level of accuracy. However, a tracking signal value of 15 indicates that the forecasting model has a systematic bias, meaning it consistently over or underestimates actual demand. Additionally, a 99.7 percent control limit implies a z-score of +/- 3, meaning any tracking signal value outside of +/- 3 is considered out of control. The tracking signal value of 15 is far outside this range, indicating that the forecasting model is out of control and needs to be corrected.

You Are Hired as a Consultant to Advise a Small