Every organization out there is looking for ways to gain a strategic edge over their competitors. Ask any manager today and they’ll tell you there are more challenges than ever to succeeding. Businesses need to face a variety of potential disruptions from market volatility to increasing amounts of data (and what to do with it), among others.
Each of these factors can and will have an impact on the budgeting and forecasting process. This is especially true for organizations that are looking to move away from spreadsheets. Instead, they are focusing on systems that are both more efficient and able to create better reports and models.
As we approach the usual budgeting season, many CFOs and budget managers know that the traditional methods of budgeting are resource intensive, and at times, leave a lot to be desired.
It’s because of these challenges that more organizations are moving towards other systems that deliver better results. In this post, I want to go a little bit more in-depth on why driver-based planning is one of those methods that can be used to improve data and reporting.
Finding the Numbers Behind the Numbers
In its most basic form, driver-based planning focuses on those key performance indicators (KPIs) that drive success within an organization. These drivers allow CFOs and budget managers to go beyond the surface data and into the variances behind the line item numbers.
The key here is these drivers enable the identification of factors that can often be hidden in the final line item of the budget. Not knowing the information behind exactly what those drivers can leave CFOs at a disadvantage. How can you pinpoint what is causing a negative variance in one department if you have no way of knowing if it’s even there?
This is just one of the reasons why the ability to know which drivers are behind the numbers is so important. Another factor is it allows for more flexibility in financial forecasting and projections. Once identified, they key drivers can be plugged into scenarios to find working strategies and identify potential opportunities.
Understanding the Rise of Non-Financial Drivers
Another exciting benefit of driver-based planning is that it allows organizations to look beyond the financial numbers. Traditionally, physical or tangible assets are commonly seen as business drivers. These are no less important today to planning and forecasting, yet now many non-financial factors are also being recognized as key drivers as well.
These non-financial KPIs are more often seen as the intellectual property (IP) of an organization versus things like property or inventory. They can include customer retention, brand reputation, consumer trust, and employee satisfaction rates. While these don’t have a ‘line item’ per se, they are nevertheless incredibly important performance indicators for the overall success of an organization.
Now, a non-financial KPI like customer satisfaction can be measured and modeled, leading to better understanding of how these drivers can impact a business. These Non-financial drivers can be incorporated into the planning process and help management teams create strategies to meet objectives.
Getting to the Why
At the end of the day, driver-based planning models can help your organization reach the answers to long-standing questions. Why did a certain business unit perform better than expected? Why are sales down? Why are employees less satisfied?
Looking at just the base numbers won’t help get the answers. But, knowing the key performance indicators to look for can make all the difference. Understanding the ‘why’ behind the drivers helps organizations to be more agile and better prepared.
Today, the business that knows its data (and how to use it) is going to able to make key decisions quickly, plan for changes in the market, and understand its competitive advantages better than ever.
To learn more about how your organization can improve financial planning using drivers, sign up for the upcoming webinar: Using Physical Drivers to Improve Financial Plans. You can register for this event by clicking here.
Businesses of every description rely on the Budget Maestro™ family of software solutions by Centage Corporation to improve the efficiency and effectiveness of their business budgeting and planning, financial forecasting, financial consolidation and reporting processes. For more information, take a tour of Budget Maestro, contact Centage, or call 800-366-5111 now.