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.
03 / Review your work
Try the assignment before opening the answer.
Open the worked answer and teaching notes
Worked numerical schedule
| Measure | Value | Unit |
|---|---|---|
| October base units | 1,100.00 | units |
| November base units | 1,155.00 | units |
| December base units | 1,212.75 | units |
| October revenue | 110,000.00 | USD |
| November revenue | 115,500.00 | USD |
| December revenue | 121,275.00 | USD |
| October operating profit | 13,800.00 | USD |
| November operating profit | 15,890.00 | USD |
| December operating profit | 18,084.50 | USD |
| Base quarter profit | 47,774.50 | USD |
| Downside October profit | 5,660.00 | USD |
| Downside November profit | 7,343.00 | USD |
| Downside December profit | 9,110.15 | USD |
| Downside quarter profit | 22,113.15 | USD |
| Downside less base profit | -25,661.35 | USD |
| Base profit reconciliation | 0.00 | USD |
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. Suggested use of the estimated 75-90 minutes: spend roughly 15% on the lesson and smaller example, 55% on the independent task, 20% on comparing approaches and 10% on the decision discussion. Timing is untested. Ask learners to explain why the numerical check is necessary but not sufficient.
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. Expert review remains pending.
Continue this learning path
FPA-01 · Revenue Is Up. Why Is Profit Down?
FPA-03 · Hire Now or Wait? A Headcount Investment Decision
AI-assisted synthetic teaching case. Expert review and native Excel / Sheets testing pending.