Assumptions and drivers can be applied globally

Description

Global application of assumptions and drivers in Corporate Performance Management (CPM) software involves the capability to apply pre-defined values into various calculations in a financial model. This allows a consistent data point to be used in forecast, budget, and reporting, ensuring data integrity across the model.

Example Use Case

Scenario: An automobile component manufacturer utilizes CPM software to manage its financial forecasting and operational planning. The software allows the user to input various assumptions and drivers, like annual inflation rates, raw material costs, regional tax rates, and sales growth percentages.

Solution: The CPM software provides functionality to globally apply these assumptions and drivers across all its plants worldwide. For example, an expected inflation rate can be applied to all cost calculations and forecasts across facilities. Similarly, any change in raw material costs can be seamlessly incorporated across the entire cost modeling, ensuring consistency in financial forecasts.

Considerations

Most systems will offer this in some form. This requires that the model be configured to reference an assumption where appropriate. This goes beyond something as simple as a top-level adjustment. This requirement implies that there is a centralized location where assumptions and drivers are stored, and in that location that can be changed within a specific time period. That change will immediately change calculations throughout the model for that timeframe.

That said, some systems offer this as a dedicated “Assumptions” tab or sheet, while others require the user to make a sheet themselves and manage it as you would in Excel. The benefit to a dedicated function is traceability throughout the model, and superior data integrity as the user knows where the assumption is being used and what is being effected when it is edited.

Questions to Ask a Vendor

• Centralized Management: Does your product include a specific area where assumptions and drivers are stored?
• Time Periods: Are the assumptions and drivers segmented by time period, or are they applied universally?
• Exceptions: If, in a certain circumstance, I want to override an assumption for a specific account on a certain month, can I do that without interrupting the calculation for future time periods?
• Versions: Are the assumptions and drivers specific to a version, or will it apply to all our versions? Can we make exceptions?