When accountants gather reports for management and stakeholders, they can use several different methods of showing how the company is doing at any given point. Forecasting methods are critical and usually use methods such as key performance indicators, or KPIs, and driver-based planning.
Since the stakeholders have goals, key results must take place for those goals to be met. These results are the KPIs. On the other hand, the drivers are the things that must take place to hit certain targets.
The Steps That Need to Take Place
For any business to achieve their target goals, certain things must take place. Usually, companies break it down into many different steps, which all must happen if those goals are to be met. These steps usually include the following:
- Identify specific goals
- Identify the key drivers
- Build a financial model that helps you reach those goals
Naturally, the process isn’t quite as simple as this, but this gives you a basic idea of what these companies do to meet their goals. Often, the model created starts with actual numbers that center around a set period. For instance, your model can specify “the last six months,” or something similar. This at least gives the companies a start point that allows you to determine what needs to be changed for your objectives to be met. While doing this, certain drivers will be made apparent, which can have a huge impact on the entire business if they are changed. Also, keep in mind that when you’re planning, a model that ties all of your numbers together is crucial. After all, metrics are only important if they can be related to the other numbers in the financial model.
Easy and Effective Driver-Based Planning
Driver-based planning is easier to use than you think. One of the main advantages of using this process is that it breaks everything down in simple, easy-to-understand terms. When you consider that financial statements are just numbers to most stakeholders, it’s easy to understand why it’s essential to use other ways when describing what’s happening with the company. Those “other ways” should include planning based on your drivers. When you’re an accountant, your goal is to make the company’s goals – and the tools to meet those goals – simple and easy to understand for everyone. Driver-based planning is one way to accomplish this goal. Finally, drivers also help management and stakeholders see “the big picture,” which is why this type of forecasting is so useful. Focusing on drivers instead of on specific actions helps you look at everything that’s happening with the company’s goals and what can be done to better accomplish those goals.
Drivers are a way to build a very forward-looking financial model that enables you to test out different scenarios so that you can clearly see what the impact of a specific change will have on the business. At Strategic iQ, we help our clients to transform their business operations with proven project management methodologies, effective management techniques and the expertise to streamline all of your company’s operations to bring your actionable goals to fruition. Our solutions are tailor-made for all CFOs, as we leverage our combined industry experience, deep knowledge, and technical expertise. Please contact us, we look forward to speaking with you to learn how we can help you be even more successful in 2021.