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Driver Based Planning
Fabio Malagisi
The Financial Planning, Forecasting and Reporting Summit
Boston, MA
October 16th 2014
A forecasting methodology that….
• Defines multiple input variables that are aligned with key business activities as much as possible
• Integrates variables into a dynamic model that defines critical cause and effect relationships
• Inputs drive automatic output
Conceptual Example
Sales Forecast
Sales Leads
Close Rate
Backlog
AvgSale Price
MfgLead Time
Customer Visits
Market Trends Headcount
New Product Launch
Plan
Sales Forecast
Traditional Driver Based Planning
Account Focused Output Focused Static variables
Driver/Activity Focused Input Focused Dynamic variables
Co
mp
ensa
tio
n E
xpen
se
Headcount Offer Acceptance Negotiation Offer Interview
Direct Recruiting Skills Market
Recruiting Agency Skills Market
Base Salary Salary Approval Salary Negotiation Salary Offer
Market
Budget
Peer Comparison
Skills Assessment
Incentives/Bonus Incentive Criteria
Federal Taxes
State Taxes
Benefits
Health Selections Health Offerings
401K Selections 401K Offerings
Other Benefits Selections
Benefit Offerings
Many Activities impact every account
Sale
s
Price Approval Discount Request
Competition
Product Life Cycle
Negotiations Contract
Units DistributionManufacturing
Process
Inventory
Scheduling Order Processing
Product Offering
New Releases
Core offerings
Promotions
Sales Force Coverage
Direct Customer Visits
Lead Conversion Lead Generation
Environment
Customer Dynamics
Competition
Economy
Marketing
Distribution
Manufacturing
Contracts Customer Service
Sales
R&D
Market Research
Many functions impact every account
Practical Example
Why use Driver Based Planning?
Should we add resources in R&D or into the sales force?
What is our marginal cost on
this proposal?
Should we pursue a strategy to make our cost structure more
variable?
Do we have the capacity to handle our new product launch?
What would happen to our plan if we lost 5% market
share?
Advantages
Drives clarity of what are the key business activities that drive results
Allows for focused resourcing of key drivers
Defines the “Dashboard” – Becomes your guide to drive day to day operations
Dynamic models allow for real time feedback and continuous planning
Defines key performance metrics to incentivize
Drives forward looking thinking
Implementation
• Use the “5 why’s” to brainstorm key activities
• Gather cross functional input
• Decide on input level variables related to activities
• Determine frequency of availability
Determine Key activities and decide
on input level
• Test relationships and determine connections
• Define desired outcomes - Link to business goalsDetermine key cause
and effect relationships
• Multiple views for multiple customers
• Set parameters to determine outliers
• Feed financial reporting systems
• Output should be as real time as possible
Determine Output needs
• Must be flexible – don’t be afraid to tweak often
• No “One size fits all”– make it relevant for you
• Balance precision vs availability vs practicality
Build Model
• Align input variables with incentives
• Constantly test relationships
• Use for major decisions – Scenario planning toolkit
• Create your “operational dashboard” based on key activities (Inputs)
Integrate into your operations
Final thoughts
Connects operational and strategic planning into one integrated tool
GPS for your business
