CUSUM vs Smoothed-Error Forecast Monitoring Schemes: Some Simulation Results

This paper compares the performance of CUSUM and smoothed-error tracking signals for monitoring the adequacy of exponential smoothing forecasts. Previous research has favoured the CUSUM. However, there is some evidence that the performance of the smoothed-error signal can be improved by a simple modification in its application: the use of different smoothing parameters in the tracking signal and the forecasting model. The effects of this modification are tested using simulated time series. We conclude that the CUSUM is robust to the choice of forecasting parameter, while the smoothed-error signal is not. The CUSUM is also more responsive to small changes in the time series, regardless of the parameters used.