This document summarizes a presentation on using a driver-based approach for budgeting and planning. It discusses integrating financial and non-financial drivers, using drivers to rapidly assess different scenarios, and obtaining the necessary data. The presentation emphasizes that driver-based planning organizes information to clarify relationships and allows for sensitivity analysis and Monte Carlo simulations to evaluate outcomes probabilistically. It provides examples of drivers for revenue forecasting and discusses dashboard and reporting tools to track key performance indicators. The conclusion stresses that planning helps improve decision-making and an integrated process is important, while change management and adapting to constraints are also keys to success.

1. Driver Based Budgeting & Planning
The Performance Conference
October 20, 2011
Jim Robertson
© 2011 James A. Robertson, Jr.

2. Agenda
Why Use a Driver-Based Approach?
Integrating Financial and Non-Financial Drivers
Rapid Assessment of Different Scenarios
P.S. Getting the Data
Summary
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3. What is Driver Based Planning?
• Method of planning/forecasting financial performance based on activities
performed by the organizations
– Financial/Non-financial
– Tactical/Strategic
• Better drivers
– Should be selected carefully so that the organization focuses on the
right thing
– Cascade from strategy to operations
– Are measurable and obtainable on a periodic basis
• Input, not output, measures
– Ideally are linked to performance measures which reflect organizations
strategic objectives

4. We All Live in a Complex Environment…

5. Drivers Organize and Clarify
Source: Balanced Scorecard Collaborative/Palladium

6. Agenda
Why Use a Driver-Based Approach?
Integrating Financial and Non-Financial Drivers
Rapid Assessment of Different Scenarios
P.S. Getting the Data
Summary
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7. Drivers in Construction Industry
Backlog
Consolidated
Proposals
New Projects Submitted and
Won
Revenue
Time & Materials
Group
Service
Operating Income
Hours Available
Geography Labor Hours Worked
COGS Utilization
Expense Material
G&A
Branch

8. Revenue Forecasting by Type
• Focus on most variable element: new
projects
• Required implementation of standardized
sales pipeline process used consistently
throughout the company
• Operational benefits were as good, or
better, than improved financial visibility
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9. Revenue Forecasting by Labor Burn
• Strong statistical relationship
between hours worked and
revenue
- Varied by branch
- Identified opportunities
for improved efficiency
• Required extensive data collection,
cleansing, and analysis
• Provided additional visibility into
required staffing by job location
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10. FP&A Roadmap
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11. Agenda
Why Use a Driver-Based Approach?
Integrating Financial and Non-Financial Drivers
Rapid Assessment of Different Scenarios
P.S. Getting the Data
Summary
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12. Standard Sensitivity Analysis Modules
Provide a Discrete Range of Outcomes
• Considers only a few discrete outcomes.
• Each outcome has the same weight – no probabilities.
• Typically does not consider interdependence between inputs

13. Other Tools Allow for More Nuanced
Assessments of Probability
• Monte Carlo simulations provide much more comprehensive risk assessment.
• Each driver is assigned to a probability distribution.
• By using probability distributions, variables can have different probabilities of different
outcomes occurring.
• Probability distributions are a much more realistic way of describing uncertainty in
variables of a risk analysis.

14. Inputs Can Be Assigned to Distributions
Which Most Closely Refect Reality

15. Monte Carlo Analysis Provides a Probability-Weighted
Range of Outcomes

16. Results Available in a Variety of Formats

17. Agenda
Why Use a Driver-Based Approach?
Integrating Financial and Non-Financial Drivers
Rapid Assessment of Different Scenarios
P.S. Getting the Data
Summary
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18. Multiple Options for BI Platforms Exist

19. BI without a BI Budget

20. Connecting to Data

21. Creating a Report

22. Creating a Dashboard

23. Pipeline Trending
Snapshots are taken on the first day of each month
for all active projects in the pipeline with start dates
in 2009 or later
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24. Win Rates
YTD
Past 6 months

25. Opportunity Maps

26. Product/Channel Analysis

27. Agenda
Why Use a Driver-Based Approach?
Integrating Financial and Non-Financial Drivers
Rapid Assessment of Different Scenarios
P.S. Getting the Data
Summary
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28. Plan for FP&A!
• Every Enterprise is unique
•There is no one way to get from
to
• What is certain is that you will not end up where you wanted to be how you
thought you would get there.
•Need to flex and adjust during the voyage
“Which road do I take?"
"Where do you want to go?"
"I don't know," Alice answered.
"Then, said the cat, it doesn't matter.”
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29. There Will Be Some Pain Involved!

30. D x V x S x A > Resistance to Change
• Dissatisfaction with Status Quo
– Burning issue helps
• Vision of Future State
– Somebody has to know what a better world looks like and how to move an organization there
– Right tools and processes in the right place at the right time
• Status of 1st Steps towards change
– Something has started
• Ability to Change
– Planning Team - process and change management skills
– Planning group as the vanguard of the revolutionary movement
• Make it look evolutionary, not revolutionary
• Incognito if needed
– Company – how used is it to change?
– Top Mgmt support – great if it’s there, but you can structure an approach which includes
winning their confidence by demonstrating how planning helps makes better decisions.
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31. Concluding Thoughts
• Organizing Theme: Planning helps people make better decisions – at all levels of an
organization
• Integrated process makes sure nothing (well, as little as possible) falls between the
cracks
– Strategic Plan (3+ years) Business Plan (1 year) Budget (1 year)
• Focusing upstream drives simplicity downstream
– Eliminate multiple budget iterations which strip away ownership and linkages
• Tools can help, but introducing or using a tool at the wrong time will wreak havoc
• The world is not your oyster
– Understand scope of influence and ability to change
• Plan for planning, continue to adapt to changing situations
• jarobertson2@gmail.com
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