01 / Learn the method
Learning outcomes
Turn operational drivers into an explicit base and downside forecast. Calculate the result, reconcile it and communicate its limitations.
Method
Forecast units and realized price before revenue. Link variable cost to activity and keep period fixed costs separate. Scenario changes must flow through those drivers rather than being arbitrary adjustments to profit. A downside case is a specified scenario, not a probability estimate.
Smaller worked example
A separate month with 100 units at $50, $30 variable unit cost and $1,000 fixed cost earns $1,000 profit. A 10% volume reduction earns $800 if all other drivers stay fixed.
02 / Put it to work
Business context and rules
Fictional Atlas Support, Q4 2026. September sold 1,000 units at $100, with $60 variable cost and $25,000 fixed costs. Base October units equal September units ×1.10; units then grow 5% sequentially in November and December. Price stays $100; unit cost is $62 each month; fixed costs are $28,000 each month. Downside each month has 90% of the corresponding base volume, price $98, unit cost $64 and unchanged fixed costs. Fractional units are allowed as expected-value planning volumes. No inventory, tax or financing; this is an operating forecast, not a cash forecast.
Original synthetic inputs
| Input | Value | Unit |
|---|---|---|
| September units | 1000 | units |
| October growth multiplier | 1.1 | multiple |
| Monthly November / December multiplier | 1.05 | multiple |
| Base realized price | 100 | USD / unit |
| Base variable cost | 62 | USD / unit |
| Monthly fixed costs | 28000 | USD |
| Downside volume multiplier | 0.9 | multiple |
| Downside price | 98 | USD / unit |
| Downside unit cost | 64 | USD / unit |
Required deliverables
Build monthly base and downside schedules showing units, revenue, variable costs, fixed costs and operating profit. Add a driver register naming who must validate demand, pricing and cost. Recommend two triggers for revising the forecast.
Use formulas for derived amounts and preserve source data. Put narrative deliverables in the workbook response area; expand it as needed. Compare amounts within 0.01 of the stated unit and percentages within 0.1 percentage point. No unsupported balancing plugs.
Workbook structure
The student workbook intentionally leaves the analysis structure open. Build the schedules required above, retain the source inputs, and add formula-based checks. You may add worksheets. The worked solution is one acceptable structure, not the only correct layout.
03 / Review your work
Try the assignment before opening the answer.
Open the worked answer and notes
Base monthly operating forecast - USD
| Driver / P&L | October | November | December | Quarter |
|---|---|---|---|---|
| Units | 1,100.00 | 1,155.00 | 1,212.75 | 3,467.75 |
| Realised price / unit | 100.00 | 100.00 | 100.00 | - |
| Variable cost / unit | 62.00 | 62.00 | 62.00 | - |
| Revenue | 110,000.00 | 115,500.00 | 121,275.00 | 346,775.00 |
| Variable costs | 68,200.00 | 71,610.00 | 75,190.50 | 215,000.50 |
| Contribution | 41,800.00 | 43,890.00 | 46,084.50 | 131,774.50 |
| Fixed costs | 28,000.00 | 28,000.00 | 28,000.00 | 84,000.00 |
| Operating profit | 13,800.00 | 15,890.00 | 18,084.50 | 47,774.50 |
Downside monthly operating forecast - USD
| Driver / P&L | October | November | December | Quarter |
|---|---|---|---|---|
| Units | 990.00 | 1,039.50 | 1,091.48 | 3,120.98 |
| Realised price / unit | 98.00 | 98.00 | 98.00 | - |
| Variable cost / unit | 64.00 | 64.00 | 64.00 | - |
| Revenue | 97,020.00 | 101,871.00 | 106,964.55 | 305,855.55 |
| Variable costs | 63,360.00 | 66,528.00 | 69,854.40 | 199,742.40 |
| Contribution | 33,660.00 | 35,343.00 | 37,110.15 | 106,113.15 |
| Fixed costs | 28,000.00 | 28,000.00 | 28,000.00 | 84,000.00 |
| Operating profit | 5,660.00 | 7,343.00 | 9,110.15 | 22,113.15 |
Fractional units are permitted expected planning volumes. Do not round intermediate calculations. Sales validates order volume, commercial finance validates realised prices, and Operations validates unit costs. Refresh the forecast when confirmed volume falls below the base path or signed supplier unit costs exceed the base assumption.
Interpretation and recommended actions
Base units are 1,100 / 1,155 / 1,212.75. Base monthly profits are $13,800 / $15,890 / $18,084.50, totaling $47,774.50. Downside profits are $5,660 / $7,343 / $9,110.15, totaling $22,113.15; the shortfall is $25,661.35. Validate demand with Sales, realized pricing with commercial finance and unit cost with Operations. Examples of triggers: confirmed order volume below the base path and signed supplier rates above $62. Do not present scenario volume as committed orders.
Scoring rubric - 100 points
| Dimension | Points | Awarding guidance |
|---|---|---|
| Calculation | 40 | Monthly base drivers and P&L 20; downside 15; quarter bridge 5. |
| Interpretation | 25 | Correct application of the case rules 10; explain the business decision 10; identify evidence or limitations 5. |
| Controls / audit trail | 20 | Traceable formulas 8; independent reconciliation 8; explicit units and signs 4. |
| Communication | 15 | Decision and numerical headline 5; actions with owners and evidence 5; concise response covering all required deliverables 5. |
Award method credit after an isolated arithmetic error rather than repeatedly deducting for it. Equivalent account labels and well-supported alternative recommendations are acceptable. Numerical tolerance is 0.01 in the stated units; no universal passing score is prescribed.
Common mistakes
Applying 5% growth to September every month; changing profit directly; describing the downside as a quantified probability.
Staged hints
Carry October units into November. Keep monthly fixed cost unchanged in both cases. Reconcile quarter profit independently from quarter revenue and cost.
Instructor notes
Prerequisites: FPA-01 and forecasting basics. The total duration of 75-90 minutes is a planning estimate, not a tested completion time. Allocate class time according to prior knowledge and reserve time for discussion of the decision and evidence.
For a simpler class, provide the model structure and work through one driver. For an extension, change one operational assumption and require a new reconciliation and recommendation. Verify the new key before distributing any variant. Open files in the intended spreadsheet application before class. Solutions are learning resources, not secure hiring examinations.
Decision
Use the driver-based downside as a planning scenario and obtain named owners' validation before committing resources.
Evidence and reasoning
Lower volume, lower price and higher unit cost compound the profit decline while fixed costs remain unchanged. Fractional units are allowed expected planning volumes, not physical dispatch instructions.
What would change the conclusion
Confirmed orders below the base path or signed unit costs above the base assumption trigger a refresh. Review realised price with commercial finance; do not treat the downside as a measured probability.
Related learning
Version 1.1. Synthetic teaching case. Completion time is an estimate.