Last Absolute Deviation Z-Score

The Last Absolute Deviation Z-Score is the Vanguard-recommended approach to getting an actionable measure of forecast error. This measure is very useful in checking your historical data for anomalies in the last period.

Z-Score, unlike other measures, relies on the most recent data rather than an average of all historic forecasts and actuals. The Z-Score represents the standard deviation from the last period’s forecasts and its actuals. A Z-Score or standard deviation of two or more indicates a recent significant structural change. Was an item discontinued? Did a large new client recently join? Did a competitor exit, causing sales to ramp up?

The Z-score is obtained using this formula:

Z-score formula

A Quick Guide to Measures of Forecast Error

Additional forecast error methods include: