The traditional budgeting and forecasting process can be long and painful. Many CFOs and budget managers would agree. On top of that, any number of issues can arise that render forecasts quickly outdated. This leaves key decision makers struggling to make the right decisions with incomplete or inaccurate information.
It’s because of these challenges that many organizations are moving to driver-based budgeting and planning. This approach works to identify key business drivers and creates models around them. These models link to the operating plan and can help predict how an organization would fare when faced with different variables.
Benefits of Driver-Based Budgeting and Planning
In this post I want to share some of the most common benefits of the driver-based budgeting and planning approach. For many organizations this approach has been a welcome change from traditional budgeting and forecasting.
Every business has those few key indicators that can give a snapshot of overall performance. Being able to drill down and focus solely on those pieces of data is an advantage—it helps reduce the noise in favor of what matters.
The ability to define your business drivers increases flexibility. For example, many organizations look more at non-financial variables now. The capacity to include variables and key performance indicators unique to the business will make planning more efficient in the long run.
The worry that their budget and forecasts aren’t accurate comes up again and again with CFOs and budget managers. Incorrect numbers can have a massive trickle-down impact on the bottom line.
A driver-based approach enables CFOs to focus on the data that specifically matters to their organization. This both removes unnecessary data and helps ensure the numbers can be trusted as the single source of truth.
An organization runs most effectively when information isn’t siloed between departments. As CFOs take a more strategic role in their businesses, they’re often vital in getting key players from different departments on the same page.
After all, a driver-based system will have key indicators from each department. So, rather than being focused solely on budget inflows and outflows, department heads can have a role to play in improving performance as it ties into operations as a whole.
One of an organization’s biggest competitive advantages is agility. Businesses want to be able to respond quickly to changes in the market, productivity and sales. Key decision makers also want to understand potential challenges and opportunities that might be on the horizon so they can be better prepared.
With the traditional budgeting and forecasting approach, agility can be hard to achieve. A driver-based system enables CFOs to run scenarios and predictive models, allowing for the organization to be ready with a plan for any change.
With so much data out there already (and more coming), it’s easy for the finance or accounting department to get swamped. Instead of working on models and analyses, employees often spend too much time on budget preparation and data entry.
With a driver-based system, departmental productivity increases. Employees can spend time focusing on the data that matters—the information the management team needs for decision making, allowing them to run more scenarios, analyze variables and contribute to overall operational strategy.
As you explore driver-based budgeting and planning in more depth, you’ll likely discover additional benefits. This approach might be just the fit you need to improve your budgeting and forecasting processes and give you a firm foundation for the future.
If you’d like to learn more about driver-based budgeting and planning, register for this week’s webinar. In The CFO Playbook on Strategy: Best Practices for Driver-Based Budgeting and Planning, you’ll learn how to choose drivers and maintain their accuracy. Click here to register.
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.