Each business has its forecast model to provide the forecast.

However, forecasters need to

monitor a forecast to determine when it might be advantageous to change or update the model. A
tracking signal provides a method for doing this by quantifying bias. The most frequently used
tracking method is to compute the cumulative forecast error divided by the value of MAD at that
point in time:

Tracking Signal = (At-Ft)/MAD

MAD (mean absolute deviation) is a common measure of forecast error. It is easily calculated by
adding the absolute value of forecast errors in each period, and taking the average of this total.
Example:
Period
1
2
3
4
5

Actual
Demand
100
90
130
140
160

Forecast
Absolute
Error
Error
90
10
10
110
-20
20
128
2
2
130
10
10
140
20
20
(10+20+2+10+20)/5
MAD =
=12.4
Forecast

A Tracking Signal indicates if the forecast is consistently biased high or low.

Period

Actual Forecas Forecas Cumulati Absolut

Demand t
t Error ve Error e Error

100

90

10

10

10

90

110

-20

-10

20

130

128

-8

140

130

10

10

160

145

20

22

20

MAD

Tracking
Signal

-10/15=
-.67
(10+20+2)/3=
-8/10.67=- .
10.67
75
(10+20+2+10)/4= 2/10.5 = .
10.5
19
(10+20+2+10+20)/ 22/12.4=
5 = 12.4
1.77
(10+20)/2 = 15

The movement of the tracking signal is compared to control limits; as long as the tracking signal
is within these limits, the forecast is in control. Control limits of 2 to 4 are used most
frequently. Values outside this rage indicate that you should reevaluate the model used.
Therefore, our example shows that this forecast is in control.