Driver-based planning is a management approach that aims to identify and manage the true drivers of corporate financial success. It is a best practice methodology where financial plans are structured using models of underlying business activities.
The primary goal of driver-based planning is to focus business plans on the circumstances that are most likely to bring success. Identifying key business drivers may be difficult if completed subjectively and if those in the organization have different perceptions of what the key drivers for success are. Forecasting business drivers objectively by means of a mathematical model helps overcome this hurdle. Models can also be created using spreadsheets or with more advanced data modeling software applications.
Driver-based planning models make it easier to re-plan faster and with greater agility. Shifts in prices or costs have revenue and income implications, however if basic driver relationships continue to be valid, management can easily identify their impact on the company’s revenues, expenses and cash flow.
Driver-based planning also makes it easier to utilize rolling forecasts, ,making it easier to deal with unpredictable business environment.