S&OP, Demand Planning & Forecasting worked example

Forecast Error Cost at 69% share driving real cost: a worked example

Push share driving real cost up to 69% and the picture changes. This example computes every intermediate figure at that operating point. A demand planner quantifies the cost of forecast inaccuracy to justify investment in a better forecasting method.

The inputs for this scenario

  • Mis-forecasted units: 5,000 units (unchanged)
  • Penalty cost per unit: 4 $/unit (unchanged)
  • Share driving real cost: 69 % (raised for this scenario; the documented default is 60)
  • Replanning and expedite overhead: 7,000 $ (unchanged)

Working through the calculation

  • Applying the documented formula (Total forecast error cost = mis-forecasted units x penalty per unit x cost-driving share + replanning overhead) to the inputs above produces each figure below.
  • At this operating point the engine returns 20,800 $ for total forecast error cost, the number this scenario is built around.
  • At this operating point the engine returns 4.16 $ / piece for forecast error cost per unit.
  • At this operating point the engine returns 13,800 $ for variable forecast error cost.
  • At this operating point the engine returns 7,000 $ for fixed forecast error cost adder.

How this compares with the baseline

  • Against the tool's baseline example, where share driving real cost sits at 60% and the headline result is 19,000 $, this scenario comes in 9.47% above the baseline at 20,800 $.
  • It multiplies mis-forecasted units by the per-unit penalty and the cost-driving share, then adds fixed replanning overhead to give total and per-unit forecast error cost. The value of this scenario is the size of the gap it exposes: that gap, priced out over a year, is the budget you can justify spending to close it.

Results at a glance

  • Total forecast error cost: 20,800 $ (headline result)
  • Forecast error cost per unit: 4.16 $ / piece
  • Variable forecast error cost: 13,800 $
  • Fixed forecast error cost adder: 7,000 $

Run it with your numbers

  • Every input above is editable in the live Forecast Error Cost calculator, which recalculates instantly and can be shared with the inputs intact.

Last reviewed 2026-05-12.