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What does MAPE mean and how is it calculated?
MAPE is mean absolute percentage error. For each period, take the absolute difference between actual and forecast, divide by the actual value, then average these percentages across periods. It expresses typical error as a percentage, which makes it easy to explain, but it breaks down when actual values are zero or very small.
Example: if actual sales are 100 and the forecast is 90, the error is 10 percent. Average these across all periods and items to get MAPE.
Limitations:
- Undefined when actuals are zero.
- Explodes for low-volume items.
- Penalises over-forecasts and under-forecasts differently, since percentage errors on under-forecasts are capped at 100 percent while over-forecasts are unbounded.
For many businesses WAPE or MAE is a safer choice.
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