Use the transmitter’s minimum output and the receiver’s sensitivity for the actual optics, wavelength and operating conditions. Enter the fiber and connection losses, then add the design reserve you need. Remaining margin is what is left after both the estimated loss and that reserve.
Example: With −3 dBm transmit power and −18 dBm sensitivity, the budget is 15 dB. Twelve kilometres at 0.35 dB/km, four 0.5 dB pairs and six 0.1 dB splices lose 6.8 dB. A 3 dB reserve leaves 5.2 dB.
A negative margin means the loss plus reserve exceeds the available budget. Reduce the losses or choose optics with a suitable larger budget. Check the opposite direction separately.
The example values are illustrative. Receiver overload, wavelength, fiber type, reach and dispersion still need to match the equipment specifications; passing this loss calculation alone does not establish optical compatibility.