Certified Supply Chain Professional (CSCP) Practice Exam

Is standard deviation an alternative method for calculating forecast error?

1. Yes

2. No

3. Only in certain cases

4. It is obsolete

The correct answer is: Yes

Standard deviation is indeed an alternative method for calculating forecast error because it provides a statistical measure that quantifies the amount of variation or dispersion in a set of forecasted values. By using standard deviation, organizations can assess the variability of forecast errors, which helps in understanding the reliability and accuracy of their forecasts. When standard deviation is applied to forecast errors, it offers insights into how much individual errors deviate from the average error, allowing for a more nuanced understanding of forecasting performance. This method is particularly valuable in supply chain management, where accuracy is crucial for inventory planning, demand forecasting, and overall operational efficiency. A smaller standard deviation indicates that the forecast errors are closer to the mean, suggesting higher reliability in the forecasts, while a larger standard deviation signals greater inconsistency and potential issues in the forecasting process. Using standard deviation complements other methods of calculating forecast error, such as mean absolute deviation (MAD) and mean squared error (MSE), providing a broader perspective on forecasting performance.