The far ultraviolet spectroscopic explorer (FUSE) satellite will make high spectral resolution ((lambda) /(Delta) (lambda) equal 30,000) measurements in the 905 - 1195 angstrom bandpass from low-earth orbit. The optical system of the instrument consists of four coaligned telescopes and gratings, which disperse their spectra onto two detectors; both the mirrors and slit assemblies will be adjustable in flight. Because of this complicated, coupled optical system, it is important to understand all of the effects which may affect performance. The ability of the FUSE instrument to maintain its high resolving power and effective area is dependent on many factors, including the optical design, manufacturing errors, the ability to coalign the system on orbit, and the stability of the structure holding the optical elements. In order to predict the on-orbit performance, a detailed optical performance budget has been developed. This budget includes all effects which affect the resolution and throughput. Included are short term effects (such as the stability of the metering structure due to thermal variations during a single orbit); long term effects (such as moisture desorption from the graphite/cyanate ester structure and gravity release); and installation tolerances. We present the results of this exercise, and describe the dependence of the instrument performance on the expected errors.