Two forecasts make errors in opposite directions. Calculate the operational consequences before deciding which evaluation metric should control the release.
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Fictional meal-preparation exercise. Daily preparation equals the forecast. Each unmet meal costs an assumed 6 USD in lost contribution and service recovery; each surplus meal costs 1 USD after salvage. No carry-over inventory or capacity constraint is included.
| Day 1 | Actual demand 80; forecast A 75; forecast B 90. |
|---|---|
| Day 2 | Actual demand 120; forecast A 115; forecast B 130. |
| Day 3 | Actual demand 100; forecast A 95; forecast B 110. |
| Day 4 | Actual demand 140; forecast A 135; forecast B 150. |
| Unmet meal cost, USD | 6 |
| Surplus meal cost, USD | 1 |
| Evidence limit | Four illustrative days only; future performance has not been measured. |
Your task. Calculate MAE, MSE and operational error cost for each candidate. Choose the next experiment, state the cost ratio that reverses your preference and consider a separate preparation policy.
Two forecasts make errors in opposite directions. Calculate the operational consequences before deciding which evaluation metric should control the release.
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