With forecasting error being measured in MAD (mean absolute deviation),the 3σ control limits imply ______.
A)the probability that the forecasting errors are attributable to random variation is 3%
B)the probability that the forecasting errors are attributable to random variation is 99.7%
C)the probability that the forecasting errors are attributable to random variation is 2.3%
D)the probability that the forecasting errors are attributable to random variation is 50%

Question

Quizplus · Accepted Answer

The 3σ control limits in forecasting imply that the probability of forecast errors being due to random variation is 99.7%. This is because the 3σ control limits represent three standard deviations from the mean, which covers 99.7% of the data within that range assuming a normal distribution. Therefore, any forecast error falling outside of the 3σ control limits is likely not due to random variation and may require further investigation.

With Forecasting Error Being Measured in MAD (Mean Absolute Deviation),the