In this post, a member of the Cardinal Path’s Data Science team, Danika Law, explains why selecting the right error metric for your business problem is so crucial. In the early project phases of running a dashboard or predictive model, we always address the client’s needs first and foremost. This post explains why, to a data scientist, selecting the right error metric is a necessary step to ensure accuracy of the model and solve for the problem at hand.
When you are building a predictive model, no matter what problem you are trying to solve for, you should always specify your error metric right from the start of the forecasting project, and make sure that it is in line with your business goals. Some error metrics punish overestimates more than underestimates, while others punish larger errors exponentially. Having the errors punished according to what most makes sense for your business will lead to a better model.
There should be one main consideration when choosing your error metric: what is the cost associated with making an incorrect prediction, and where is this cost the largest?
Once you have specified how you want your error metric to punish errors, you’ll need to select one that fits your business needs. Here are some resources that will help you select:
Ensuring that you specify your business problem correctly, and choose the correct error metric will help ensure that the cost of making a mistake is balanced out by how you evaluate your model.
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