Create More Value With Budget Drivers
The budget-, forecast- and planning process should be efficient and create value for the business – which often times is easier said than done. So how do you create value in a pretty stiff process? Altogether, the Planacy team has several decades of experience in financial planning, and our answer is: drivers.
The Importance of Delegation
In our opinion, you must first and foremost ensure that an appropriate level of delegation is established that retrieves input from those with the greatest insight into daily operations. Often, however, the people working in the operational part of the business are rarely fans of gigantic Excel processes, which are often drawn up in accordance with a classic financial structure with accounts.
Our recommendation is therefore to always use what is called budget drivers. A driver is an event, or a key indicator affects the company's performance and profitability, i.e. which drives a change in the income statement and balance sheet.
In example, for a car dealer it can be:
- Number of new cars sold, used cars and service contracts
- Number of employees
- Vacation and sick leave
- Marketing campaigns
For a company with international sales and purchases it could be:
- Exchange Rates
- Number of customers per geographical market, which in turn drives revenue
- Central costs
A driver is thus something that the business knows well and that often controls the company's various departments.
Benefits of Driver-based Budgeting & Forecasting
With a driver-based budget and forecast your company will plan and budget on well-known concepts (drivers) that drives costs and revenue to the account-based P&L according to a defined framework. This makes it easier for the company to understand the process and plan accordingly. All of the work with budgeting, forecasting and planning will therefore become easier for the employees at the same time as those working with business and finance control will receive more relevant and qualitative input.
Streamline Manual Preparations & Consolidation
With a system for budget and forecasting you will streamline the manual work with preparations and consolidation and the process will thus become more efficient – despite the fact that you have increased the level of delegation and quality of input. In this way, both the business and those working with business control will get a process with more value since there will be more time for analyzing the budget/forecast, as well as supporting the business in the process.
If you would like to know more about driver-based budgeting, please feel free to contact me or one of my colleagues!