Ever heard of driver-based planning? If not, now's your time to learn.
CEOs are turning to this relatively new business model for its innovative approach to budgeting and predicting their companies’ financial (and other) outcomes as far as a few years into the future. So what exactly is driver-based planning, and how can it benefit your company?
Driver-based planning is an approach to business propelled by what are known as operational “drivers.” Generally speaking, these are the normal operations that go on inside a company, or, according to an article in BizShifts-Trends, drivers are “critically important factors that determine, or cause, an increase in value or major improvement of a business.”
Driver-based planning takes all of the important growth factors within a company and uses them to construct a budgeting, planning and forecasting model that is designed to manipulate these factors to achieve maximum efficiency. This is easier said than done, so before you and your company take the plunge into the world of driver-based planning, consider these tips:
1. Take major factors into account
Consider what is driving your business’s growth, costs, cash-flow and customer satisfaction. Driving factors will vary by industry, but generally, the aforementioned factors are universal.
2. Know which data is important
Once you survey your major business factors, it’s time to narrow it down to the essentials. Data is constantly changing, and we understand that. But knowing which data sources to rely on for your planning model is something that you need to nail down early on.
3. Collaborate across departments
Since successful driver-based planning requires everything to be integrated, it is essential for CEOs and managers to get everyone on board. Every department within the company should be involved in the process of creating the company’s master plan. Collaboration is key for everyone to be on the same page when it comes to the company’s overall goals.
4. Get the right perspective
Think this model is all about scrutinizing every possible detail in your value data? Think again. Ventana Research director Robert Kugel advises those considering driver-based planning, “To make such a model accurate and actionable, planners must focus on key performance drivers (and key performance metrics derived from them), which are the most important determinants of revenues and costs across all business functions and which draw the connections between them.”
5. Answers the right questions
Rather than constructing a model that tries to answer every possible question that may arise your budgeting and forecasting cycles, start small. Build your model’s foundation by answering the most basic questions of any budgeting or forecasting model, such as:
- What is the overall purpose of the model?
- What happens to revenue growth?
- What happened to operating margins?
- How will cash flow be affected?
6. Know the minimum set of drivers needed for success
Although finding your key drivers is crucial in driver-based planning, don’t be overzealous in narrowing them down. Every component of your operations has an effect on your company in some way or another. The trick is to find a happy medium built on your basic essentials — plus just enough extra to create as stable, but as inclusive a model as possible.
No matter the size or industry of your company, driver-based planning is at least worth investigating. When seamlessly constructed and implemented, this technique carries the potential to secure your company’s financial future in ways you never thought possible. It all starts with awareness of your business’s infrastructure, its history, and above all, its goals.