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Is Driver-Based Budgeting and Planning Right for Your Organization?

Is Driver-Based Budgeting and Planning Right for Your Organization?, Centage

For many organizations, there’s often a gap between the budgeting and planning process and actual strategy and execution. When this occurs, budgeting and operating strategies aren’t coordinated, which can lead to errors, not only in the projected budget but in decision making, as well. Clearly, this is not something any organization wants to experience.

As CFOs and budget managers have continued to take more important roles in operations and decision making in some organizations, so too has the budgeting and planning process evolved. This is where driver-based budgeting and planning has achieved more traction over the traditional budgeting and planning process in many businesses.

In this post, I want to share with you some of the key benefits and barriers to implementing a driver-based budgeting and planning software system. Hopefully this will help you decide if this method is worth exploring for your company.

Driver-Based Planning: An Overview

What makes driver-based planning (DBP) and budgeting an intriguing option to many organizations is that it looks at the key drivers from operational activities as the main source of information for the management team’s strategic decisions.

Rather than relying on the traditional budgeting method that is typically bottom up, heavy on details and rather complex, DBP takes a top-down approach that is simple and light. Just enough data on specific drivers is provided to make the right decisions in a more efficient manner.

However, the ability to make decisions quickly is the real goal of driver-based planning. Many organizations use it to help management develop a system that helps key stakeholders become more agile and effective.

Key Benefits

There are several benefits to a DBP system, which is why it has become more popular in recent years among companies. What follows are just a few of the main factors to take into consideration.

Agility

I mentioned it before, but one of the biggest reasons why some companies are moving to this style of budgeting and planning is to make decisions more quickly. This not only helps for decision making on the fly when the situation arises, but it also allows for future forecasting and modeling.

Less Complex

When it comes to the budgeting and planning process, key stakeholders often find themselves mired in the details. While having all the data available is a good thing, not being able to understand the handful of important data points is not. Using a driver-based planning and budgeting software system can help remove complexity without losing the KPIs that matter.

Organizational Cooperation

More organizations are looking to create a culture that has cooperation across departments. Since the DBP process focuses more on overall operations, it helps to reduce budget battles between departments. This ensures department managers are on the same page and work together to improve business efficiency and productivity.

Key Barriers

As with any financial budgeting and planning system, nothing is a perfect fix. So, it’s important to be aware of some of the barriers your organization might face in implementing a DBP system.

Identifying Drivers

For a driver-based budgeting and planning system to truly work well, organizations need to have a stack of key drivers identified. Seems simple enough, right? However, problems can arise when too many drivers are included, making the model more complex than it needs to be. It’s important to get this right from the start.

Trouble with Spreadsheets

If you’re using Excel as your main system to create budgets and for your planning process, you’ll likely encounter difficulty expanding to DBP. An already large spreadsheet will likely be taxed even more with the macros and equations that would be needed to boil all the data points down into the necessary key drivers.

Hopefully, you have a better idea of the basics of driver-based budgeting and planning and see how it may be worthwhile for your organization.

See how you can build a driver-based budget model in days. Test multiple scenarios, generate accurate and automated forecasts, and enforce your chart of accounts.

Centage Corporation’s Planning Maestro is a cloud-native planning & analytics platform that delivers year-round financial intelligence. With Planning Maestro, Centage offers the sophisticated features needed by small and mid-market organizations to integrate budgeting, forecasting, and deep data analysis within one easy-to-use, scalable SaaS solution. For more information on how to modernize your office of finance with intelligent planning, view our product demonstration video, or call 800-366-5111.