Driver-based planning is an approach to planning and management that is focused on identifying an organization's key business and value drivers and then creating business plans and budgets based on these key drivers.

The goal of driver-based planning is to focus business plans on the factors that are most critical to driving success, then creating mathematical models that enable managers to run scenarios based on these drivers to understand the impact on projected business results.

For example, driver-based planning can be useful in long-range strategic planning, where Finance executives need to project long-term trends for revenues and costs.  Key drivers will vary based on the industry and company, but here are some typical examples:

  • Market size and growth
  • Market share
  • # of customers/subscribers
  • # of orders or shipments
  • Sales volumes in units
  • Average sales price per unit

Driver-based planning can also be applied in more detailed financial budgeting for the upcoming fiscal year, as well as in creating rolling forecasts to update budget assumptions.  Here, instead of having managers budget or forecast every single line in their cost center budgets, the focus is on updating key metrics that drive other line items via calculations.  So in the example shown below, we’re focusing on the number of employees in the cost center and the average annual costs for communications, computers, and office supplies. 

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From these drivers, we can calculate and forecast annual communications costs, computer costs, and office supply costs.  Then, when analyzing budget variances, we can understand the true drivers behind the variances.  In traditional budgeting, this level of detail is often not readily available, or it’s in some disconnected working papers.  This technique is often used for other areas, such as travel expenses, staffing a call center, or building out a regional sales organization. 

Driver-based planning saves a lot of time and effort in budgeting and forecasting.  By eliminating the line by line approach and focusing on key business drivers, manager can save a great amount of time and effort in creating the initial budget, and also in updating their forecasts throughout the year.

Driver-based planning is also highly valuable in helping executives understand the true value-drivers or levers of their business, and how changes in these drivers can impact future business outcomes.

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24 responses to “What is Driver-Based Planning?”

  1. Jean Dane says:

    Driver based planning makes for more accurate plan IF you choose the true drivers and adjust them as your business changes. They also make creating a plan more efficient.

  2. Nikita says:

    Agree with the following statement “Driver-based planning is also highly valuable in helping executives understand the true value-drivers or levers of their business”

  3. Nicole says:

    I do believe that Driver-based planning saves a lot of time and effort in budgeting and forecasting and is highly valuable in helping to understand the true value-drivers of business. I would like to use this more.

  4. Jamie says:

    Agreed – driver based planning is a critical part of our short term and long range models. Simplifying and streamlining this process is crucial.

  5. Jeremy Zhao says:

    This seems to be a super powerful tool that we can leverage! We’re not using it at the moment but I can definitely see the insights that this will bring if we were to fully utilize. Paradigm changing!

  6. Megan says:

    I agree with this as well. Given that Audit Committees, etc. tend to look at the numbers in terms of relationships, it makes sense that we also do so in setting our budget and expectations. Then any discrepancies from these expectations based on our selected drivers can be investigated and hopefully the explanations would provide additional value to all involved.

  7. David Cannon says:

    Adopting and implementing driver models significantly increases both the efficiency and effectiveness of planning, reporting, analysis and driving improved business performance.

  8. Pam says:

    Driver based planning also lets companies make decisions faster by providing visibility into what’s moving financial results.

  9. Nikola says:

    Driver-based planning is most valuable approach is done correctly.

  10. Kate says:

    Being a part of budget I can see how this would be an excellent way to really forecast well and meaningfully.

  11. Lee Johnston says:

    Key Performance Drivers are an essential part of a rolling forecast in my opinion. Continuous monitoring and improvement of these drivers will help to increase accuracy with each iteration.

  12. Rahul Gupta says:

    Driver based planning will act as a forcing function to think about key metrics that should be tracked and improved in the business (instead of just operating expense)

  13. Han Shih says:

    Driver based planning is essential to revenue planning but can also applies to variable cost planning and certain part of OPEX to drive planning efficiency. However the process requires the management to carefully review and select what are the business essential drivers to effectively and accurately forecast the business trending.

  14. Courtney says:

    Driver-based planning can definitely save a lot of time and effort in budgeting/forecasting, but only if the correct key drivers are identified. Management also needs to stay aware of the fact that these key drivers could change over time as the business or industry evolves, and they need to be willing/ready to adjust accordingly.

  15. Cindy Beggs says:

    For driver based planning to work properly, you have to chose the correct drivers. Choosing the wrong ones can really take you down the wrong road.

  16. Mary McLaughlin says:

    We are using driver based planning already. As a Host Analytics user I am looking forward to using more each budget cycle. Host make it easy, set up once, verify you got it right and you are done.

  17. andrea says:

    In working with Engineers, it’s really effective for us to use key usage metrics as drivers rather than costs. It simplifies planning and increases forecast accuracy.

  18. Jacob Lambert says:

    We’ve been using driver-based planning at my company as long as I’ve been here. In an established business, this seems like the most straightforward and logical way to plan. Over the years, we haven’t deviated from driver-based planning, but we have continued to refine and identify the correct drivers to use for each area of our business.

  19. Lauren Mazzone says:

    This makes a lot of sense and would definitely be useful to implement!

  20. Lanny Baldwin says:

    Although we don’t currently use driver-based planning or rolling forecasts, I can definitely see how this would be helpful.

  21. Matt Laucks says:

    Since it deals mainly with forecast, what can be the allowed extent (%) of variance between Planned & Actual cost. Can this be a factor to determine the efficiency of the driver based planning approach used ?

  22. Monica Erin says:

    Driver based planning has enabled our team to automate more of the forecasting and budgeting process

  23. Zach says:

    driver based planning has helped us tremendously in our annual forecasting accuracy

  24. Hunter Scrivner says:

    Driver based planning has enabled our team to automate more of the forecasting and budgeting process

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