• Roderik Olde Kalter, Director |
  • Brice Nuttin, Expert |

How to gain superior business insights while increasing efficiency through driver-based planning

As explained in a recent article (Rethinking Financial Planning - KPMG Switzerland), in today's fast-changing and uncertain world, companies should transition from traditional financial planning to more agile and integrated planning processes. Driver-based planning is one of the most powerful tools to kick-start this transformation journey, allowing leading companies to beat their competition through superior business insights.

What is driver-based planning?

Driver-based planning is a framework used to plan business performance based on a hierarchy of company-specific value drivers, derived from strategic objectives. It replaces the traditional “bottom-up” planning approach and enables companies to plan and analyze performance in a smarter way.

A best-practice driver-based planning connects both financial and operational levers at cascading levels, using so-called “value driver trees”. 

As illustrated in the example below, value driver trees combine internal drivers such as FTE numbers and average salaries with external drivers such as labor market conditions or inflation. These drivers can in turn influence the company’s performance in a quantitative or qualitative way. 

Example: Value driver tree regarding selling, general and administrative expenses:

Defining a well-designed and company-specific value driver tree is the cornerstone of a successful driver-based planning process. Ultimately, these drivers must be aligned with the company's strategic objectives, be clearly defined and have material influence on operational and / or financial performance.

What are the advantages of driver-based planning?

Driver-based planning offers a wide range of benefits: 

  • creates a stronger connection with strategic objectives; 
  • is a less subjective planning approach; 
  • moves beyond the use of historical numbers to predict the future;
  • takes into account internal and external drivers and corresponding data sources;
  • increases the speed of the planning process;
  • reduces the manual workload compared to traditional bottom-up planning approach. 

Furthermore, driver-based planning is the first building block towards a wider transformation of financial planning. It essentially unlocks other significant improvements such as integrated business planning, rolling forecasts, scenario planning, sensitivity analysis and intelligent/predictive forecasting. 

What is the role of technology in the transition to driver-based planning?

Technology is obviously a key enabler for enhanced planning processes. Once a company has defined its driver-based planning framework "on paper", the next step is to embed it into the Enterprise Performance Management (EPM) technology landscape. This will ensure efficient planning processes, whereby drivers are configured and connected to the right data sources, and changes in assumptions and targets are seamlessly taken into account. 

Driver-based planning is a must-have capability for any EPM solutions nowadays. Companies should therefore consider this when selecting a new EPM solution or upgrading their current system. Luckily, modern EPM solutions should natively provide such features. 

What should you do next?

We encourage finance leaders to ask themselves three basic questions: 

  • Is your financial planning process in sync with your strategic objectives?
  • Do you put too much time and effort in your financial planning processes? 
  • Are your forecasts reliable, timely and delivering value to the company? 

If the answers to these questions are "no" then it is certainly time to initiate your financial planning transformation journey and start implementing driver-based planning. 

Read the full article "Driver-based planning - Elevating FP&A", developed with our global KPMG EPM experts, which describes the topic in more details.

You can contact our EPM experts to discuss this further. Our Planning Maturity Assessment is a low cost – high impact tool to expose improvement potential in your planning process.

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