How is forecast error defined?

Forecast error is defined as the difference between the actual value and the forecasted value. This means that to calculate the forecast error, you subtract the forecasted value from the actual value. This approach provides a clear indication of how much the forecast deviates from what actually occurred. A positive forecast error indicates that the actual value was greater than the forecast, while a negative forecast error indicates the opposite.

Understanding forecast error is crucial for supply chain and operations management, as it helps identify the accuracy of forecasts and can inform adjustments to improve future forecasting processes. The option that suggests taking the forecasted value and either adding or subtracting the actual value does not accurately reflect how forecast error is calculated and would lead to incorrect interpretations of forecast performance.