The confidence interval around the explanation forecast in Demand Planning shows how well the mathematical forecast and the seasonal profile is to forecast the actual demand one lead time period into the future, which is the important period. The period lead time is computed from the pars lead time read from IFS Applications. How to read and convert this lead time into the period lead time can be configured see DP Server Registry Settings for details about how to configure this (\Database\LeadTimeValue and \Settings\LeadTimeMethod).
The confidence interval is computed by taking the average of the squared difference between the explanation forecast and the adjusted demand. The square root of this is set as 1 standard derivation.
Where
D = Adjusted Demand
E = Explanation Forecast
Then this +- one such Conf is the dark gray area and +- 2 conf's is the light gray area.
The confidence interval around the forecast is only computed when the part has longer historical demand than the number of periods forecasted into the future, another thing to note is that the interval will be more accurate the longer the historical data of the part is. This interval shows how good the forecast model selected is to forecast 1, 2, 3, 4... periods into the future, the shorter ranges intervals (1 ,2 and 3 periods) will be most accurate especially with short historical data lengths.
This interval is computed by running the forecast from the start of history and measuring the performance for each future forecast period against the actual, then move one period in to the future and do the same all the way to the end. The confidence interval is the square root of the average of the squared derivations measured over the entire historical length of the part. The same formula as above.