Question

Why should someone use driver based forecasting instead of account based forecasting

Answer 1

Benefits of Driver Based Forecasting (DBF)

1. Better accuracy. DBF improves the accuracy of forecasts, allowing the organization to ignore unnecessary items and focus on material drivers. Companies can also take the next step and run predicative analytics by looking at different inputs to the model. They can figure out what factors are going to move the business in either direction.

2. Data integrity. The number one benefit of DBF is trust in the numbers

3. Higher frequency. DBF makes it easier to forecast and plan more frequently by using technology to input KPIs into models that generate financial forecasts. It’s tied back to KPIs and strategy, thus it’s a unified way that gets people to be more focused on key drivers of business success.

4. Speed of decision-making. DBF lets companies make decisions, fast, by providing visibility into what’s moving financial results. Companies can begin to understand what levers to pull and their likely effect. If companies see a change in a driver, they can buy the most valuable thing: time to respond.

5. Better business support. Driver-based modeling is the best way for finance to support the business. Increasingly, finance is becoming a better partner to the business. The focus on business drivers allows finance to invert the pyramid—instead of spending two-thirds of their time on transactions and one-third on value-added analysis to support the business, FP&A can spend two-thirds on value-added analysis.

6. Ability to plan around key drivers. focusing on the operational drivers enables an organization to understand, plan around, and influence the critical elements that have the greatest impact on financial performance.

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

8. Getting everyone on the same page. DBF gets all the different functional leaders on the same page; finance, marketing, sales, manufacturing, distribution, etc., can see the impact of their activities on financial results.

9. Developing a rolling forecast. Driver models are also an essential foundational component for establishing a rolling forecast framework and significantly reducing the time and effort associated with the traditional annual planning process. As more companies peek around the corner at 12 months, that’s becoming an essential factor.

10. Changing the conversation. DBF forces the discussion to turn to activities and operational driver-based conversation, i.e., focusing on the value chain of the business since drivers are tied to that value.