Driver-Based Planning: Why Less is More

Paul Hoch

By
June 4th, 2014


When it comes to EPM planning, companies have traditionally taken a “more is better” approach. With tighter budgets and competition between departments for budget allocation, it’s easy to go down the path of providing too much information, on the premise that you can’t manage what you can’t measure.

The unfortunate reality is that traditional planning is both time-consuming and expensive. The typical planning process takes place annually and lasts three to six months, making the plan out of date by the time it’s finalized.

One of the major pitfalls of traditional planning is getting too mired in the details. If you ask someone for 500 guesses, they are going to be less accurate per guess than if they focus on a few well thought-out predictions and use averages for the things they can’t control. Too much effort is spent gathering data in the planning process, validating and then revalidating the data. According to the Harvard Business Review, the average Fortune 1000 company spends 1.5 percent of its revenue on budgeting and forecasting activities.

So what’s the solution? Driver-based planning focuses on actionable drivers of the business and allows the rest to just happen.

One of the most important benefits to driver-based planning is that it allows you to react quickly to changing market conditions and economic environments. For example, imagine an event occurs that requires everyone to revise their budgets and forecasts in advance of an upcoming board meeting. When there are a few drivers in our business that can ripple through to our profit line/margin line by changing a few key drivers, this allows us to act more quickly and doesn’t turn into a week-long process.

To cite another example, let’s say you are told you need to cut $500,000 from your budget. If you have to go through each line in order to do so, it may not be easy or even accurate. You can’t just cut your travel budget, for example, without it affecting another area of your business. If by cutting travel, you’re cutting trade shows or client visits, those may affect your sales pipeline. Everything is intricately linked. Similarly, by cutting expenses like marketing, or ad buys you may actually be cutting into your profits. In some cases you’d be better off doubling your ad budget, as counterintuitive as that may seem, in order to increase profitability.

At the end of the day, driver-based planning affords companies the benefit of higher accuracy without getting mired in the details, making them more nimble and able to react to market conditions.

If you are attending Kscope14 in Seattle, WA, don’t miss Paul Hoch’s presentation (details below):

Driver-based Planning: When More Isn’t Better
Paul Hoch
Wednesday, June 25, 2014
2:00 p.m. – 3:00 p.m.
Session 14

For more information on driver-based planning, visit Planning & Forecasting.


Paul Hoch

About Paul Hoch

Paul Hoch has over 18 years of EPM and Hyperion experience, specializing in Essbase and Planning. He has successfully completed large-scale EPM implementations for clients in industries ranging from retail to government and financial services to health care. Paul has served as solution architect and team lead for implementations and he has developed and delivered advanced team training. He also blogs and presents regularly on EPM topics, including Essbase, Planning, Hybrid Cloud implementations, PBCS, EPBCS, Smart View, Calc Manager, migrating to the cloud, and more.

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