DRIVER-BASED PLANNING AS PERFORMANCE MANAGEMENT BEST PRACTICE

IES  always keeps your core PERFORMANCE MANAGEMENT processes of Forecasting, Planning and Budgeting on course for MAXIMUM PROFIT

• Driver-Based Planning Summary (See Performance Management Best Practices) of current practices:

  • Using Cognos definitions

    • driver: “An operational cause with a financial effect”

    • planning: “..a strategic prediction of business performance at a summary level…process can be fairly frequent and must be completed quickly.”

    • Budgeting: “..planning distributed to individual areas ..across the business.”

    • Forecasting: ..essentially, a recasting of the budget--perhaps in summarized form--to reflect changing market conditions, strategic plan alterations, error corrections and revised assumptions in the original budget.”

    • Rolling forecast: "To overcome the forecasting wall (i.e., year end), organizations use a rolling forecast with consistent period in each forecast...the single most valuable tool to...identify where changes need to be made in order to maximize profitability and minimize losses."

• Rolling forecasts is a performance management best practice which is enhanced significantly in conjunction with driver-based planning..  Rolling forecasts are used to:                       
  • overcome the forecasting wall (i.e., year end)
  • reflect changing marketing conditions, strategic plan alterations, error corrections and revised assumptions in the original budget

   

• Driver-based planning is a performance management best practice because it allows a revised forecast to be quickly translated into a revised plan.  A driver-based plan is, in effect, a descriptive model.

   

• IES Benefits, given driver-based planning's current limitations
  • The best practice of rolling forecasts is limited to only those companies who have adopted driver- based planning.
    • IES creates a driver-based plan for ALL companies whether their current planning is driver-based or not. Thus, ALL companies can immediately adopt the rolling forecast best practice
  • All current planning models are descriptive (See Types of Models). Thus, there is no ability to determine what the right thing to do is.
    • IES is normative and, thus, determines the right thing to do. It maximizes profit by aligning  sales and marketing expenditures with the most profitable forecast the plan’s resources can achieve.
    • Profit improvements of 5-10% or more are reasonable expectations
  • Many costs have no or questionable drivers; therefore they must be allocated, For example, see CAMI-I, The Closed Loop or Anderson and Kaplan, Time-Driven Activity-Based Costing.
    • IES integrates them into the same model and requires no allocation
  • All planning processes treat forecasting, capacity planning and budgeting as separate, sequential activities.
    • IES treats them simultaneously and optimally (See Palladium)
  • In addition, IES Benefits include:
    • Is easy to use because it is a simple, non-disruptive extension to your current planning and budgeting process. Further, if your budgeting and planning process is already driver-based, the data can be used to create the IES model, simplifying the model build process (See Time Driven and CAM I: Closed Loop
    • Identifies least and most profitable customers, channels, brands, products, business partners- in any combination
    • Applies to all plans and budgets whether physical (e.g., manufacturing) or non physical (e.g., financial services)
    • Is updated continually as competitive, economic , industry and other circumstances