Budget can be entirely driver based and automatically created after GL actuals are imported

Description

Within Corporate Performance Management (CPM), driver-based budgeting is a streamlined approach that ties financial forecasts and budgets to key business drivers. This capability allows a budget to be automatically created and updated once General Ledger (GL) actuals are imported into the CPM system. The process optimizes planning and budgeting, improving flexibility dramatically speeding the process.

Example Use Case

Scenario: A global retail company uses a CPM software that utilizes driver-based budgeting. The company's GL actuals for the previous month includes data on sales, expenses, and revenue from different stores across various locations.

Solution: Through importing the GL actuals into the CPM system, a new budget is automatically created based on key business drivers, such as revenue figures, inventory turnover, or customer footfall. The system uses these drivers to project future financial performance, providing a more responsive and precise budgeting process.

Considerations

If the system has the capability to be entirely driver based, we absolutely recommend doing that for at least one version of the budget. Understanding and testing drivers is an incredibly powerful way to learn what really matters for a business. Without knowing what drives revenue and expenses, we're really just guessing. Using drivers in this way helps us create more compelling what if scenarios as well, as it is much easier to distill a scenario down to a few drivers vs something primitive like “increase revenue 5%”.

It might also make sense, depending on the amount of historical data you have, to create a driver based budget and a separate predictive budget, then compare those side by side. Investigate the anomalies to help dial in your usage of different methods and drivers.

Questions to Ask a Vendor

• Automation Capabilities: How does your system automate the creation of driver-based budgets after importing GL actuals?
• System Adaptability: How easily can the system adapt to changes in the business's key drivers?
• Adding Drivers: How do I add a driver and make it produce a budget or forecast automatically? Show me the formula syntax.