November 15, 2022

Driver-based modelling: Tips for better planning in less time

What is driver-based planning? Read our tips about how it helps improve planning

In a world facing unrelenting change, businesses are rethinking how they plan. To manage uncertainty, being proactive and forward-looking is vital for any business planning function. Working with a forward-looking lens gives your team the capability to make timely changes to maintain relevance in your market and for your customers despite internal or external changes. Agility gives you the best chance of future success.

At its core, driver-based planning gives businesses a solid planning foundation. And when driver-based modelling is used as part of rolling forecasting, you’re on track to faster, more agile planning.

So, what is driver-based modelling exactly?

Driver-based modelling is a financial planning strategy that identifies a business’ value drivers and then focuses planning efforts on how these drivers lead to actionable outcomes and results. The resulting business plans concentrate on understanding the links between strategy, value drivers and tangible outcomes. A driver-based budget identifies resources and activities needed to achieve a business goal (such as a 25% increase in margin).

An example could be employee costs based on the number of hours an employee works. If the business strategy is to expand into new markets and employ a new team member, then the budget is adapted by simply changing the number of hours worked by the hourly cost. This updates the total employee cost figure.

Top tips for rolling out driver-based planning to plan faster
  1. Keep it simple. Choose the drivers that have a real and connected impact on your business success. There isn’t a rule for how many drivers are “best”. What is more important is to clearly understand how the drivers influence business outcomes and select them accordingly. Drivers for a transport business could be hourly truck driving rates, fuel and vehicle maintenance costs.
  2. Get organisation-wide buy-in. Having everyone operate on the same page is critical for driver-based modelling to be successful. Everyone needs to know the links between leading and lagging indicators on the drivers and what drivers they’re responsible for. If no one buys into the chosen drivers, then this model will not give you the outcomes you need.
  3. Data quality is key. Having current and accurate data is essential when using a driver-based approach. Tools that integrate with your ERP system and other operational data are easier to use and manage than Excel (using Excel often results in a time lag or working with lower-quality data).
  4. Centrally maintained variables. With driver-based modelling, the rates and relationships are maintained at the highest level. This means that one person (or team) maintains the relationships and price book. This removes any variation at an input level and keeps the organisation focused on the same goals and outputs.  
  5. Excel versus other planning tools. Driver-based planning in Excel is possible. Possible, but with inherent limitations. Spreadsheets often have hidden flaws - broken links, formula errors and data integrity issues. Using Excel for driver-based planning comes with a large caution warning!

When your priority is having a robust planning tool that lets you focus on the strategy behind the numbers, then dedicated planning tools are the solution. Automated tools update drivers quickly and accurately, ultimately making decision-making faster. They eliminate fragility and errors as the cause-and-effect nature is already established when linking drivers to outcomes.

Pairing driver-based modelling with rolling forecasting gives you a robust planning foundation for faster and better decision-making. With Six Degrees Planning, you can quickly see the impact of key variables on the bottom line and ultimately connect your business to the insights that matter.

Like to see how Six Degrees Planning helps teams manage change better? Contact us for a walk-through.