Driver-Based Planning

Driver-Based Planning is a hot topic in the world of forecasting, planning and budgeting. What distinguishes “driver-based” from “not driver-based” is the use of mathematics to create budgeting, forecasting, and planning models.

Driver-Based Budgeting: Purpose is to populate the general ledger with budget data and set targets. Generally budgets are not highly driver-based and require many manual inputs that must be added together. For more on driver-based budgeting best practices, see the Blog: Driver-Based Budgeting Vs Driver-Based Planning.

Driver-Based Forecasting: Purpose is to develop either a volume (units, weight, or cube) or revenue forecast to brief management on the most likely case. See Morlidge/Player’s Future Ready, pages 107-8 for brief description of driver-based forecasting (math models).

Driver-Based Planning: Purpose is to quickly analyze, communicate, and take action based on financial implications of driver-based scenarios. Especially in today’s economy, successful management requires increased visibility to more scenarios more often.

To be actionable, the driver-based plan must be unit-based. Entering revenue as a simple dollar amount will not produce insight into underlying business drivers.

Ventana Research, a benchmark and advisory firm summarizes this need for unit-detail to support insights and action:

“Planning…is about creating a detailed program of action… planning is about things…units sold… truckload shipments and so on… Budgeting is about not failing, while planning is about succeeding”.

Here are the three key steps to adding value with driver-based planning:

  1. Get management on board: Management must understand unit drivers and the levers they can turn to move the business forward.
  2. Get out of the weeds: Focus management on the key items that drive the business model.
  3. Execute what’s actionable: Finally, to make the unit-based model actionable requires:
    (a) Communicating to management what is most important at the right time and
    (b) Collaborating with the right people across the enterprise to facilitate better decision making continuously throughout the fiscal year. A unit-based planning model serves as a platform for analyzing scenarios and driving the business forward.

Make your planning efforts actionable…unit based
Ben Lamorte

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