Driver-based planning

As featured on BusinessMirror:  Driver-based planning

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.

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”. These 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.

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 a material influence on operational and/or financial performance.

Moreover, driver-based planning is also highly significant for businesses in the Philippines as it aligns planning with strategic objectives, enables intelligent analysis, integrates financial and operational insights, provides flexibility and agility, improves performance management and facilitates effective resource allocation. 

In a post-pandemic world, driver-based planning becomes even more important due to the increased volatility and uncertainty that businesses face. By identifying key drivers and analyzing their impact, businesses can navigate uncertainties and shifts in the market, proactively address risks, allocate resources efficiently and monitor progress toward strategic goals. This approach empowers businesses to thrive in a rapidly changing environment, fostering sustainable growth and success.

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;
• considers internal and external drivers and corresponding data sources;
• increases the speed of the planning process;
• reduces the manual workload compared to the traditional bottom-up planning approach. 

Furthermore, driver-based planning is the first building block toward 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. 

Technology is 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. 

• Is your financial planning process in sync with your strategic objectives?
• Do you put too much time and effort into 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.