Key Questions About Implementing Driver-Based Planning

Why It Matters:

• Improves Forecast Accuracy: By linking operations to financial results, forecasts are more precise.
• Boosts Flexibility: Helps businesses respond quickly to market changes.
• Better Resource Allocation: Aligns daily efforts with long-term goals.

Key Steps to Get Started:

1. Identify Key Drivers: Focus on measurable factors like sales volume, production efficiency, or customer satisfaction.
2. Validate Driver Data: Ensure accuracy by analyzing historical trends and industry benchmarks.
3. Build Driver Models: Create models linking drivers to financial results; test them with real data.
4. Integrate EPM Systems: Use tools like Anaplan or Adaptive Insights for real-time tracking and automation.
5. Monitor and Update: Regularly review drivers, data quality, and model performance.

Common Challenges:

• Poor data quality
• Lack of team alignment
• Difficulty in prioritizing drivers

By addressing these issues and starting small (e.g., with a pilot project), businesses can gradually implement driver-based planning for better decision-making and financial success.

Driver Based Planning: Finding the right drivers

How to Identify Key Business Drivers

Understanding your company's main goals, market position, and revenue targets is crucial for pinpointing the factors that drive success. Identifying these drivers helps businesses align daily operations with financial objectives, creating a more focused and effective planning process.

Examples of Drivers by Industry

Key business drivers vary depending on the industry. Here's a quick look at some examples:

Industry	Key Drivers
SaaS	Customer Acquisition Cost (CAC), Monthly Recurring Revenue (MRR)
Retail	Inventory Turnover Rate, Customer Satisfaction Score
Healthcare	Patient Satisfaction, Bed Occupancy Rate
Manufacturing	Production Efficiency, Raw Material Costs

The focus should be on drivers that have a measurable and direct impact on financial outcomes [2]. Once you've identified the most relevant ones for your industry, the next step is gathering and validating data to ensure these drivers accurately reflect your business performance.

Gathering and Analyzing Driver Data

To effectively manage and evaluate driver data, follow these steps:

• Data Collection and Analysis: Use a reliable system to track operational and financial metrics, study historical trends, and compare them with industry benchmarks [7].
• Driver Validation: Examine how each driver influences financial results to confirm its relevance and impact.

Collaboration across finance, business units, and IT teams is key to ensuring these drivers are accurate and aligned with your company's broader goals [6]. Once validated, they can be integrated into planning models to provide actionable insights.

Steps to Set Up Driver-Based Planning

Driver-based planning relies on a structured process that aligns operational metrics with financial goals, helping businesses respond effectively to changing conditions.

Building and Testing Driver Models

Create models that reflect the relationships between operational metrics and financial results. For instance, a retail company might connect website traffic directly to sales revenue [2][4].

Here’s a breakdown of key model components:

Component	Purpose	Example
Primary Drivers	Directly impact finances	Sales volume
Secondary Drivers	Support primary drivers	Marketing spend
External Factors	Influence from outside	Economic trends

Validate your models thoroughly using historical data. Scenario testing is crucial to see how changes in drivers impact financial outcomes [1][4]. Once validated, ensure the models are integrated into a reliable system for scalability and efficiency.

Leveraging EPM Systems for Integration

Enterprise Performance Management (EPM) systems like Board, Anaplan, and Adaptive Insights streamline driver-based planning by offering real-time tracking and automated forecasting [8].

The Driver-Based Planning approach effectively allows companies to identify their most important areas. However, challenges in the post-planning part of the cycle can be mitigated with the FP&A team's involvement." - FP&A Trends, 2023 [5]

These systems offer several advantages:

• Automate data aggregation for faster processing
• Real-time forecasting to stay ahead of changes
• Improve collaboration between finance and operations teams

The accuracy of your data and customizing the system to fit your business needs are critical for success [1][3]. With models and systems in place, the next step is to tackle potential implementation challenges.

How to Overcome Common Challenges

Challenges to Watch For

Implementing driver-based planning comes with its fair share of obstacles. Recent data shows that while 36% of organizations have fully adopted driver-based models, 38% are still in the early stages or have made limited progress [6].

Here are some of the major challenges and how they impact organizations:

Challenge	Impact	How to Address It
Poor Data Quality	Leads to inaccurate forecasts and unreliable models	Set up governance rules and conduct regular audits
Cross-functional Alignment	Causes disconnected planning processes	Develop systems for collaboration across teams
EPM System Integration	Limits scalability and automation	Use platform-agnostic frameworks that work across the enterprise
Driver Prioritization	Results in ineffective resource allocation	Focus on drivers with measurable financial impact

Tackling these issues requires a clear and structured plan. Addressing them effectively ensures the drivers and models you've developed deliver their full potential.

Tips for Successful Implementation

For a smooth and effective implementation, organizations need to lay a strong foundation. Here are some actionable strategies:

Get Leadership on BoardLeadership support is essential to overcome resistance within the organization. Make sure executives understand the benefits and actively advocate for the initiative.

Prioritize Data QualityStrengthen data practices with steps like:

• Regular audits to identify issues
• Automated validation systems to catch errors early
• Clear policies for managing data
• Ongoing monitoring to ensure consistency

Form Cross-functional TeamsBring together experts from finance, operations, and IT to create a diverse team. This ensures driver-based planning becomes part of the entire organization, not just a finance task.

Start Small, Then ExpandBegin with a pilot project targeting a specific business unit or process. This allows you to test and refine your approach, achieving quick wins that build momentum for broader adoption.

Driver frameworks are designed to integrate with Enterprise Performance Management (EPM) systems [6], providing flexibility in technology while keeping your planning process consistent and reliable.

Maintaining Long-Term Success

Keeping driver-based planning effective over time takes consistent effort and smart adjustments.

Regular Monitoring and Updates

A clear monitoring plan helps ensure everything stays on track:

Monitoring Activity	Frequency	Key Focus Areas
Driver and Model Review	Quarterly	Check KPI alignment, forecast accuracy, and validate assumptions
Data Quality Audit	Monthly	Ensure data integrity and completeness
Stakeholder Feedback	Quarterly	Gather insights from business units

Be ready to update models when there are market changes, shifts in strategy, new product launches, or if performance starts to stray from expectations.

Building a Data-Driven Approach

Sustaining success goes beyond the initial setup - it requires consistent execution and company-wide commitment.

Collaboration, quality data, and SMART goals are critical for driver-based planning success." - KPMG International [6]

Technology Integration should focus on:

• Setting up strong data validation rules
• Using automated alerts and dashboards for real-time tracking
• Providing cross-functional teams access to key metrics

Skills Development is equally important. Invest in training for:

• Identifying and fine-tuning key business drivers
• Advanced analytics and interpreting data effectively
• Techniques for driver-specific modeling
• Planning approaches that involve multiple departments

To keep the system effective, balance short-term wins with long-term goals. Tailor industry frameworks to fit your business, and conduct regular reviews to ensure your planning system evolves alongside your organization.

Conclusion: Key Points and Next Steps

Succeeding with driver-based planning requires a clear strategy and ongoing refinement. Although only 36% of organizations have fully implemented driver-based models [6], following a structured approach can help others catch up.

Checklist for Getting Started

Here are the key phases to focus on during implementation:

Phase	Key Actions
Foundation	Identify primary drivers, assess data availability, and create initial models with clear KPI targets
Execution	Implement EPM integration and provide training for core team members
Monitoring	Set up performance tracking systems and regular review cycles

Start small with pilot projects to test your approach before rolling it out on a larger scale. For example, a retail company might first analyze store traffic and conversion rates before tackling more complex areas like supply chain metrics.

Leverage Tools and Skills for Success

Driver-based planning works best when supported by the right technology and expertise. While 26% of organizations have applied driver models in specific areas [6], expanding their use requires a thoughtful balance of tools and skill development.

Key Tools and Capabilities:

• EPM systems for integration and analytics tools for tracking performance
• Expertise in driver validation, modeling, and data analysis
• Platforms that encourage collaboration across teams

Collaboration is the key. Ongoing, timely collaboration between Finance, Business, IT, and other key stakeholders is required to maintain relevance of the framework." - KPMG International [6]

FAQs

What is the driver in the financial planning process?

In financial planning, drivers are factors that directly influence business performance and financial outcomes. These are typically grouped into two categories:

Driver Type	Examples	Impact Areas
Internal Drivers	Production volume, sales team performance	Efficiency and operational costs
External Drivers	Market conditions, customer demand	Revenue and pricing strategies

To make the most of these drivers, focus on measurable elements, connect them to financial results, and track their performance regularly. While the specific drivers differ by industry (as discussed earlier), the goal is to choose those that offer actionable insights for your business [2].

Collaboration among finance, business, and IT teams is key to ensuring these models remain effective and aligned with company objectives [6]. By concentrating on actionable drivers, businesses can build planning models that are more responsive to changing conditions.

Identifying the right drivers is just the beginning - integrating them into your planning process is what unlocks their full potential. This integration helps organizations create better forecasting models, leading to smarter decisions and stronger financial results.