Why Tolerance Levels Matter: Forecast Accuracy in Sales and Operations Planning (S&OP)
- Doug Dedman
- 6 days ago
- 2 min read
Think of your business like a car driving on the highway. Tolerances are the lanes on that highway. As long as you stay in the lanes, you’re moving smoothly, safely, and predictably. But the second you drift over the line, alarms should go off. That’s the signal that something is wrong, and you need to take corrective action before you veer too far off course.
This is exactly how tolerances work in demand planning. They’re not about punishing people for being “wrong.” They’re about creating boundaries that help you know when to stop, look, and ask: “What happened here?”
Forecasting Example
Let’s take an example. Suppose your bookings plan was 2,100 units, but the actuals came in at 6,000. That’s not just a small miss, that’s a dramatic departure from plan. You’d have to slow down, ask what caused the shift, and take action.
So the big question is: How do you set tolerances that are both realistic and useful? This is where many leaders trip up.
If your historical forecast error is 20%, it makes no sense to demand 5% next month. Instead, start with where you are today. If you typically run at 20% error on bookings, then set your initial tolerance band at ±20%. Maybe shipments can be held to ±10%. The key is to start with a range that reflects your actual performance, not a wish.
Over time, as your process matures and the organization builds discipline, you can begin narrowing those tolerance bands and bringing the gaps closer together.
The Power of Tolerances in Sales and Operations Planning
The real power of tolerances is how they turn numbers into signals. They tell you when to stop, when to ask questions, and when to adjust. They give leadership confidence that the process is under control and not because it’s perfect, but because it’s predictable.
And at the end of the day, that’s the real goal of forecast accuracy: not perfection, but trust. The ability to look at the numbers and know that when something’s out of line, the system will catch it, and the team will respond.
At DBM Systems, our consultants have over 20 years of experience providing S&OP leadership to businesses worldwide. We equip teams with coaching and the tools to quickly start and sustainably run an effective S&OP process. Learn about our process and unlock the power of S&OP in your organization.