A forecast bias occurs when there are consistent differences between actual outcomes and previously generated forecasts of those quantities; that is: forecasts may have a general tendency to be too high or too low. A normal property of a good forecast is that it is not biased.
[APICS Dictionary 12th Edition, American Production and Inventory Control Society. Available for download a]
As a quantitative measure , the "forecast bias" can be specified as a probabilistic or statistical property of the
forecast error
In statistics, a forecast error is the difference between the actual or real and the predicted or forecast value of a time series or any other phenomenon of interest. Since the forecast error is derived from the same scale of data, comparisons bet ...
. A typical measure of
bias
Bias is a disproportionate weight ''in favor of'' or ''against'' an idea or thing, usually in a way that is closed-minded, prejudicial, or unfair. Biases can be innate or learned. People may develop biases for or against an individual, a group, ...
of forecasting procedure is the
arithmetic mean
In mathematics and statistics, the arithmetic mean ( ) or arithmetic average, or just the ''mean'' or the ''average'' (when the context is clear), is the sum of a collection of numbers divided by the count of numbers in the collection. The colle ...
or
expected value
In probability theory, the expected value (also called expectation, expectancy, mathematical expectation, mean, average, or first moment) is a generalization of the weighted average. Informally, the expected value is the arithmetic mean of a l ...
of the forecast errors, but other measures of bias are possible. For example, a median-unbiased forecast would be one where half of the forecasts are too low and half too high: see
Bias of an estimator
In statistics, the bias of an estimator (or bias function) is the difference between this estimator's expected value and the true value of the parameter being estimated. An estimator or decision rule with zero bias is called ''unbiased''. In stat ...
.
In contexts where forecasts are being produced on a repetitive basis, the performance of the forecasting system may be monitored using a
tracking signal, which provides an automatically maintained summary of the forecasts produced up to any given time. This can be used to monitor for deteriorating performance of the system.
See also
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Calculating demand forecast accuracy
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Consensus forecast
Used in a number of sciences, ranging from econometrics to meteorology, consensus forecasts are predictions of the future that are created by combining together several separate forecasts which have often been created using different methodologies ...
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Optimism bias
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Demand forecasting
Demand forecasting is known as the process of making future estimations in relation to customer demand over a specific period. Generally, demand forecasting will consider historical data and other analytical information to produce the most accurat ...
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Exponential growth bias
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Forecast skill In the fields of forecasting and prediction, forecast skill or prediction skill is any measure of the accuracy and/or degree of association of prediction to an observation or estimate of the actual value of what is being predicted (formally, the pre ...
References
{{biases
Statistical forecasting
Bias
Supply chain analytics