Driver-based forecasting means you as a company base your financial forecasts on key business drivers. It is one of today´s best practices and most recommended approach for supporting a company´s management needs.
However, many businesses are hesitant to adopt driver-based forecasting because the truth is that they are still manually doing most of the work in excel spreadsheets.
It then begs the question of whether or not driver-based forecasting can be performed despite still operating in an excel spreadsheet environment. The answer is YES.
Driver-based forecasting can still be setup in a spreadsheet environment in order to perform what if analysis. That said, driver-based forecasting will generate more value for your business if instead of doing it in excel spreadsheets you utilize an integrated FP&A platform like Performance Canvas Financials for example.
Using an integrated FP&A platform will allow you to see the overview of forecast across the organization and you can also measure against drivers. Simply put, driver-based forecasting works in an excel spreadsheet environment but it works a lot better using an integrated FP&A platform.
Then we move on to a more important issue of what makes driver-based forecasting challenging for some companies?
- Organizational Alignment
The biggest challenge in driver-based forecasting is the need for organizational alignment. Using this approach requires that everyone takes part and fully comprehends their role in the process. Each player must know what figures he or she is responsible for and he or she must take accountability for these figures.
The first step in ensuring success in the execution of driver-based forecasting is making sure you have everyone´s buy in and that everyone agrees to the drivers and rates to be used. We put this as the biggest challenge because organizational alignment is always a lot harder most people think.
- Timeliness of Information
Another important aspect of driver-based forecasting is the timeliness of information. Normally, finance departments perform variance analysis after month-end and then the volume data is then linked in that process. It is important not to wait too long for these data to come because waiting many months down the line means it is a lot harder to change your course of action if warranted.
- No optimal number of drivers recommended
Lastly, companies looking at how their peers perform driver-based forecasting usually ask if there is an optimal number of drivers to identify or manage regularly. The answer is that there is no such thing.
In assessing how many drivers to identify and manage, you must look inwards at your business model and what type of spending your company does. You also need to ask yourself the question of what it is you are trying to measure and analyze? These are what determines the number of drivers that are ideal for your business.
Do you want to start performing driver-based forecasting but you are unsure how to begin? Have a chat with one of your finance experts or avail of a free online demo of our integrated FP&A platform by visiting www.performancecanvas.com or by emailing email@example.com.
What would you like to do next?