What is driver-based planning?
Driver-based planning is building budgets and forecasts from the operational factors that cause financial results, such as units sold, price, customer numbers, headcount and productivity, rather than typing in a figure for each account. When a driver changes, every number that depends on it updates, so plans are faster to revise and easier to explain.
Also calleddriver-based forecastingdriver-based budgeting
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- Plans from
- Volumes, prices, headcount
- Benefit
- Fast, explainable updates
- Risk
- Too many drivers
How driver-based planning works
Finance first identifies the drivers that explain most of the numbers. For a subscription business they might be new customers, churn, price per seat and sales capacity; for a retailer, store count, footfall, conversion and basket size. Formulas then connect drivers to accounts: revenue equals customers times price; sales salaries equal headcount times average cost; commissions are a percentage of bookings. Department heads plan in terms they understand, such as hires and volumes, and finance gets consistent financial statements. Because the logic is explicit, variance analysis can show which driver caused a gap. The risk is over-building: a model with hundreds of drivers is as hard to maintain as a line-item budget. Most teams keep a small set of drivers for the big lines and plan minor costs by trend.
Common questions
What is a business driver?+
An operational measure that causes a financial result, such as units sold, number of customers, average price, headcount or conversion rate. Changing the driver changes the figures that depend on it.
What is the difference between driver-based and line-item budgeting?+
Line-item budgeting sets a value for each account directly. Driver-based planning calculates most accounts from a few drivers, so assumptions are visible and changes flow through automatically.
Can driver-based planning be done in spreadsheets?+
Yes, for simple models. As drivers, versions and contributors grow, planning software helps by holding the logic centrally and linking it to actuals.
Software for driver-based planning
Part of Accountio’s accounting technology coverage · Glossary
