Driver-based planning and modeling is term that started gaining popularity in 2009 and 2011. Today, this has become a popular concept for many finance professionals because of its usefulness in drafting an operational plan for the business.
Talk to any CEO and you’ll soon find that many of them really just care about 2 important things in the business – the financial outcome and the future.
This is where driver-based planning and modeling comes in handy. It allows the finance team to either build a complete bottom up budget for the company and then play around with different drivers which usually strongly leans towards what the company has historically done or where the finance team is allowed to define the minimum set of key drivers for their business by which they can model the business.
Ultimately the goal of driver-based planning and modeling is to be able to answer questions that pertain to the financial outcome and the future of the organization.
Some CFOs, CEOs, and finance professionals are disappointed with driver-based planning and modeling sometimes because of its wrong use and execution. In addition, before any company can begin, figuring out what the minimum set of drivers for the business is requires a complete buildup of Profit and Loss first for the business.
If you are thinking about giving driver-based planning and modeling another shot in your organization, here are 5 important things to know:
- Driver-based Planning and Modeling is possible for companies running on Excel Spreadsheets
It is not true that a low tech environment company cannot adopt driver-based planning as it is possible to implement it in a spreadsheet environment for the purpose of scenario analysis.
That being said, there is wisdom in investing in an integrated platform like Performance Canvas by DSPanel in order to get more value out of driver-based planning and modeling. It makes more sense to see the consensus forecast across the company, be able to measure it against drivers, and run a distributive process. Using an integrated platform can better execute driver-based planning and modeling for your business.
- Organization alignment is your biggest enemy for Driver-based planning and modeling
Driver-based planning and modeling cannot be done in isolation. This requires organizational alignment as everyone needs to know what they are accountable for. Without organizational alignment, there will be no real buy-in from all the stakeholders and therefore, very little value can arise from it.
- Quality source for data and timing is everything
One of the critical questions you will face in implementing driver-based planning and modeling is: Do you have a good source of data on your drivers?
Another thing that is so critical when doing driver-based planning and modeling is the timeliness of information. It doesn’t make sense to wait Half a year to get the data because by then you will not be able to change the course if it is warranted.
- There is no such thing as preferred number of drivers
There isn´t a one size fits all kind of rule when it comes to the number of drivers. This really is about your business model and what you are attempting to measure or analyze.
- Needing activity-based costing to do driver-based planning and modeling is a myth
Activity-based costing and driver-based planning and modeling can exist independently of each other. Of course, if you are doing activity-based costing, this makes adoption of driver-based planning and modeling faster because you already have an idea which activities drive cost and how much costs they incur.
Performance Canvas specializes in driver-based planning and modeling in terms of future scenarios, value creation for shareholders, and industry benchmarks. If you want to know more about the best practices in driver-based planning and modeling, visit www.performancecanvas.com or email email@example.com for more information or to see the planning solution in action.
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