What is Driver Based Planning?

4 mins to read
What is Driver Based Planning?

The devil is always in the detail, especially when it’s budgeting time. When we’re in business planning mode we’re looking at what worked well and what didn’t, as well as projecting most likely and stretch scenarios to plan the next year of cash flow. We need the detail to make an action plan to capitalize on opportunities or mitigate risks.

When in planning mode, business leaders want to answer specific questions like: What quantity do we need to sell? How should we price our products? How much stock do I order and when? And to answer these questions, you need historical information and data at the transaction level – data that traditional top-down budgeting struggles to capture and house in a single, consolidated view.

This is where driver-based planning comes in. As an integrated bottom-up approach to budgeting, driver-based budgeting gives business stakeholders visibility into what key business drivers impact the bottom line - so they can best allocate resources and drive performance.

What is driver-based planning?

Driver-based planning is a financial planning process that focuses on the activities (known as ‘drivers’) that impact business performance. It’s based on the idea that certain activities drive business results, and if you can measure these activities, you can influence results. By linking budgets to the resources behind each activity, you can allocate the right mix of resources based on your desired outcome.

For example, if you sell oil you’d most likely want to build a budget that avoids pricing volatility and focuses on how many barrels you can sell. With barrels being your unit of measure, a driver-based model can help you build a sales budget based on how many barrels each sales rep, branch, distributor, or division might sell.

Driver based planning also helps when looking back and reviewing financial performance. For example, if you’ve had a successful sales period, you can drill down into the details to find out why. And when you know why, you’ll know where to focus your efforts to get those results again.

Connecting results to resources

The power of driver-based planning lies in knowing what drivers have the biggest impact on the bottom line. When you know both the financial and non-financial drivers (such as headcount, sales leads, and quantities sold) you can create meaningful budgets that connect resources to results. This allows you to:

  • focus resources on the most critical factors that drive success
  • see how metrics from different teams across the business roll up to the financial statements
  • easily adjust your team’s forecast based on real-time, reliable data
  • play out different scenarios to see the financial impact of different decisions.

Examples of driver-based planning in action

Manage demand

Manage demand
Find your demand gap by comparing sales forecasts to your inventory and open purchase orders
Manage lead times

Manage lead times
Build in enough lead time by looking at campaign periods, sales forecasts, and stock on hand
Manage headcount

Manage headcount
Allocate staff workloads by reviewing sales targets, conversion rates, and sales call volumes

Read more: Why driver driver-based planning is important to modern FP&A

The reality of adopting driver-based planning

While driver-based planning and its benefits sound great in theory, adopting it into your forecasting process can be a challenge. Depending on where your business is on your budgeting and forecasting journey, you might recognize some of these common issues:

Spreadsheets upon spreadsheets

To collect information from across the business, you might have separate spreadsheets for different areas and activities. The data then needs to be shared, imported, and consolidated. This takes up valuable time and often leads to errors.

Lack of security

With so many separate spreadsheets, it’s almost impossible to see who has made what change and when. While you can add some restrictions, these can make it hard for people to provide input when needed.

Time lags

When a change is made to one spreadsheet, information isn’t automatically updated across other spreadsheets that link to it. So before you can do anything with it, you’re left waiting for information to be consolidated.

Poor visibility

Depending on the size and nature of your business, capturing that granular level of detail can take too long or be too complex to manage. This means you could be missing key driver details in your budgeting process.

“Driver based budgeting in the sales workbooks was a huge step forward for us, allowing a lot more flexibility and choice about how we determine our sales figures. Phocas facilitates a business-wide, connected and dynamic budget.”

Michelle McKee, Group Project Accountant, Haldane Fisher

Extend your FP&A planning with confidence

Driver-based budgeting in Phocas Budgeting & Forecasting helps businesses break down silos between finance and every other department by connecting and synchronizing plans across the entire organisation.

Find common ground between teams, when you integrate financial and operational drivers into your budgeting process. Understand the ripple effect non-financial drivers have on the rest of the business. And visualize all of this within one single source of truth, so that real-time information is available whenever you – or other teams – need it. As a result, your budgeting process can be:


Under this approach, everyone becomes involved in the budgeting process, which helps get buy-in from the start


Information is automatically available in real-time, so you can create forecasts based on real results


With no more waiting around for different teams to supply their data, you can re-forecast and adapt to changing conditions fast


Replace multiple versions with a master budget and forecast where you can set access levels for added security


Work with an interface based on Excel for a familiar feel and easy adoption across the business


Shape the driver-based budgeting module to suit your unique business.

Learn more about how you can integrate operational and financial drivers within your business budgeting process by requesting a demo today.

Written by Phocas Software
Phocas Software

Empowering businesses with intuitive data analytics, driving informed decisions for growth and profitability. We make people feel good about data.

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