Polarization mode dispersion (PMD) induced system penalty .epsilon. is determined from optical characteristics of an optical wavelength division multiplexed (WDM) signal that is carried on a network. The method involves tapping the optical WDM signal, separating an optical channel from the tapped optical WDM signal, performing a frequency-resolved state of polarization (SOP) measurement on the channel, and computing the PMD-induced system penalty as .epsilon.=AL.sup.2+BL.sup.4, in which A and B are predetermined parameters and L is an SOP string length based on the SOP measurement.