In the current economic climate, proper financial planning and management are more essential than ever before. With that in mind, many businesses are turning to budgeting and planning drivers as a way of obtaining more accurate information. A newer approach to financial management, driver-based planning involves examining a company’s main business and value drivers with a goal of designing plans and budgets with them in mind. If your company is hesitant to abandon traditional methods, it’s worth doing your research to learn more about driver-based planning and its advantages. Keep reading to learn why it’s challenging to make the move to a new budgeting model and discover how driver-based planning can benefit your business.
Understanding Budgeting and Planning Drivers
Budgeting and planning drivers can have a profound effect on your business’ success or failure. With driver-based planning, companies identify a set of factors that influence their success and model that data to better understand its impact. Managers can then run scenarios with the drivers to improve long-term strategic planning.
Here are some of the most common business drivers of which companies should be aware:
Market size, shares, and growth
Customer or client numbers
Number of orders or shipments
Sales volume and average price per sale unit
Additionally, businesses can use budgeting and planning drivers to create budgets for the coming fiscal year or build rolling budgets based on updated assumptions.
Why Managing Budgeting and Planning Drivers Is a Challenge
It’s no secret that companies have a love-hate relationship with budgeting and planning drivers. After all, driver-based planning is known for being hard to manage and track, with larger organizations facing particular challenges. Being aware of the below difficulties associated with managing drivers can help your organization stay agile.
Identifying Drivers Company leadership needs to identify the drivers impacting their business if they want to take advantage of a driver-based planning system. Still, including too many drivers in your company’s budgeting model can make it overly complex. The goal is to find the key drivers that impact your company in the day to day.
Trouble with Spreadsheets If you’re working with budgeting and planning drivers for the first time, it’s easy to become overwhelmed with Excel spreadsheets. After all, budgeting spreadsheets tend to be large, and it’s easy for them to become unwieldy when you try to incorporate the necessary macros and equations. For this reason, many companies opt to abandon Excel budgeting in favor of a tool that can handle driver-based planning and forecasting.
How Established Drivers Can Benefit Your Business
Here are some ways you’ll benefit from incorporating driver-based planning into your budgeting and financial management:
Increased Agility Between the lingering effects of the COVID-19 pandemic and the possibility of a coming recession, companies need the ability to make smart decisions on a dime. One of the benefits of driver-based planning is that it allows businesses to act and react more rapidly. By identifying key drivers, you give yourself a leg up when it comes to understanding challenges and opportunities that come your way. The goal is to empower your financial decision-makers to run scenarios and make predictions in the face of change.
Organizational Cooperation In the current economic climate, your employees are your best assets. To that end, companies should do what they can to encourage communication and cooperation across departments. With driver-based planning, companies can limit interdepartmental budget issues by focusing on the big picture. Additionally, focusing on budgeting and planning drivers helps department heads look beyond budget inflows and outflows to improve operations.
Defined Drivers Identifying business drivers is crucial to improving flexibility. With so much information coming into a company at any given time, it’s easy for the most important data to get lost in the shuffle. Driver-based planning lets businesses focus on key indicators while ignoring the noise. The end result is that companies can plan more efficiently.
Data Integrity Are you sure that your current forecasts are accurate? If your data is less than pristine, it can have a significant trickle-down impact on your business and ultimately hurt your bottom line. By incorporating a driver-based approach, you empower your financial leaders to focus on the data that matters while ensuring the numbers you have are accurate.
Greater Efficiency If you’re feeling overwhelmed by the amount of data available to your business, then you’re not alone. Similarly, having too much data can prevent finance and accounting departments from knowing where to focus their energies. Incorporating a driver-based system boosts productivity by allowing employees to concentrate on those areas that can do the most good. Rather than spending all their time on data entry, your employees can analyze and model information, run scenarios, examine variables, and develop a more effective operational strategy.
Recognizing that details are everything in the current market, many of today’s top businesses are looking for tools to help them stay organized. With a flexible, driver-based software system, companies can update their forecasts whenever new data comes their way.
A Driver-Based Budget that Programs Itself
At Centage, we recognize that old financial forecasting methods aren’t always up to the task in today’s complex business climate. With that in mind, we created Planning Maestro to help companies build and shape reliable driver-based budgets without outside help. GAAP compliant and easy to use, our system eliminates the need for messy spreadsheets, so you don’t have to worry about errors from linking complex formulas and macros. Try Planning Maestro today and experience the difference that better budgeting can make.