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Finit Solutions Webinar Driver Based Forecasting
- 1. Driver Based Forecasting February 12, 2016 Carla Cwiertnia ©2016
- 2. Finit EPM Services Page 2 Full Cycle Implementations Upgrades Dedicated Support
- 3. Why is Finit here? Page 3 Finit takes pride in being a company of makers and Doers; people who dig in and get their hands dirty We make and deliver personalized financial reporting solutions and experiences …Not Company to Company, but Person to Person By listening, questioning, and analyzing
- 4. The Finit Family Page 4 Fully aligned with our clients, not just bottom line $ No debt or external ownership Work with Finit employees, no subcontractors Compensation based on CLIENT SATISFACTION PRIVATELY OWNED CLIENT SATSIFACTION NO SUBCONTRACTORS DEBT FREE
- 5. Finit Values Page 5 Our values on which we ask you to provide consultant feedback: • Approach & Collaboration • Integrity & Honesty • Client Betterment • Self Betterment • Colleague Betterment • Finit Betterment • Work Effectiveness • Impact & Innovation • Proactiveness & Passion Service Solutions Betterment
- 6. Finit Customer Success Page 6 Our values, culture, and approach to becoming a trusted advisor to our customers has led to 100% customer success for every Finit client (250+) and for every Oracle Hyperion project (500+)
- 8. Questions
- 9. Upcoming Webinars Page 9 February 19th - What would happen if I did...in HFM: greatest hits and disasters – Chris Barbieri February 26th - Intro to Planning Part II - Cindy Eichner
- 10. ©2016 About the Presenter Page 10 Carla Cwiertnia ccwiertnia@finitsolutions.com • 15 + Years Experience with Hyperion Planning and Essbase • Member of Planning and Essbase Practice Team • Member of Finit Answers Team • Oracle Hyperion Planning and Essbase Certified Consultant • Loves Hawaii!
- 11. ©2016 Agenda Page 11 • Driver Based Forecasting • Challenges and Types of Drivers • Key Steps in Creating a Driver Based Forecast • Driver Based Forecasting Examples • Contact Information and Future Webinars
- 13. ©2016 What is a driver? • Cause and effect • What an organization does • Align with business processes • Inputs – not outputs • May not be controllable Page 13
- 14. ©2016 How do we use drivers? • Budget / Plan / Forecast • Revenue Analysis • Cost Analysis • Profitability and Pricing • Risk Analysis • Strategic Decisions • Process Improvement Page 14
- 15. ©2016 What is driver based forecasting? • Identifying key metrics • Global Drivers • Local Drivers • Model impact of variables • Focus on areas that drive success Page 15
- 16. ©2016 What are the benefits of driver based forecasting? • ‘What if’ Scenarios for changing drivers • Focus on what drives the organization • Standardize forecast process • Predict labor expenses more accurately • Create forecasts more easily Page 16
- 17. ©2016 How will Drivers Improve Forecast Accuracy? • Manage changes efficiently • Provides consistency • Update forecasts quickly and more often • Strategic advantage Page 17
- 18. ©2016 Challenges and Types of Drivers
- 19. ©2016 Challenges to Driver Based Forecasting • Identifying key drivers • Differing Opinions • Determining the number of drivers needed • Identifying the level of detail required Page 19
- 20. ©2016 Types of Drivers • Labor Cost Drivers • Headcount • Tax Rates • Benefit Rates • Unit Drivers • Pounds • Units Sold • WIP Units • Volume • Sales Drivers • Gross Sales • Price • Revenue % • Net Sales • Margin %
- 21. ©2016 Types of Drivers (cont’d) • Occupancy Drivers • Square Footage • Price per Square Foot • Financial Drivers • # of Transactions • Market Share / Attrition • Technology Drivers • Headcount • Licenses • # of Computers • # of Servers
- 22. Key Steps in Creating a Driver Based Forecast
- 23. ©2016 • What drives revenue and cost • Metrics for overhead • Apply rates and caps • Use brackets to apply rates • Standardize the forecast process Key Steps in Creating a Driver Based Forecast Page 23
- 24. ©2016 • Price • Units / Volume • Supply & Demand • Margin • Inventory • Fixed Cost • Variable Cost • Labor • Material Key Drivers of Revenue and Cost Page 24
- 25. ©2016 • Key areas of overhead • IT • Finance • Human Resources • Overhead often gets allocated by these methods: • Headcount • FTE • Units Sold • Labor Hours Drivers to Plan for Overhead Page 25
- 26. ©2016 • Overhead expenses are often associated with headcount Drivers to Plan for Overhead (cont’d) Page 26
- 27. ©2016 Travel Driver Examples • Travel Expense Drivers • Type – Domestic, International, etc. • Average Cost per Flight • Average Cost per hotel night • Average Cost per rental car day • Airfare Expense = Average Cost per Flight * number of flights • Hotel Expense = Average cost per hotel night * number of nights
- 28. ©2016 Travel Driver Examples (cont’d)
- 29. ©2016 Travel Driver Examples (cont’d)
- 30. ©2016 Using Drivers to Apply Rates and Caps • Labor Drivers • Benefits Rate • 401K Rate • Merit Increase Rate • Payroll Tax Rate • Medicare Tax Rate • Social Security Tax Rate • Social Security Tax Cap • Medicare Tax Cap • Unemployment Tax Rate • Unemployment Tax Cap
- 31. ©2016 Using Drivers to Apply Rates and Caps • Social Security Tax = If YTD Gross Income <= Social Security Tax Cap, Then (Gross Income * Social Security Tax Rate)
- 32. ©2016 • Income Tax Brackets – Salary Cap and Rate Drivers • The Income Tax Rate applied depends on Base Salary Driver Brackets
- 33. ©2016 • Proactive vs. reactive • Align drivers with actual processes • More efficient and quicker to make changes Standardizing the Forecast Process Page 33
- 34. Summary
- 35. ©2016 Summary Page 35 • Drivers are what the organization does • Identify key metrics and get consensus • Model how processes are impacted by variables • Standardize
- 36. Contact Information & Future Webinars
- 37. ©2016 Thank You for Attending! Page 37 Today’s Presenter: Carla Cwiertnia ccwiertnia@finitsolutions.com General Questions: Greg Barrett gbarrett@finitsolutions.com Joe Mizerk jmizerk@finitsolutions.com Copy of the slides or Recording: Email us for a copy of the slides or a link to the recording insights@finitsolutions.com Past webinars: www.finitsolutions.com/webinars Follow us on Twitter for updates: @Finit_Solutions
- 38. ©2016 Upcoming Webinars Page 38 What would happen if I did...in HFM: Greatest Hits and Disasters Friday, February 19th, Noon EST Chris Barbieri Intro to Planning Part II Friday, February 26th, Noon EST Cindy Eichner
Editor's Notes
- The first thing you have to know about Driver Based Forecasting is ‘What is a Driver’? Cause and Effect – Something that has an impact. Changing drivers gives a different result. May not be controllable – Seasonality; Market Changes; Supply & Demand
- Revenue Analysis – Sales = Price * Units Cost Analysis – Activity Based Costing; Fixed & Variable Costs Profitability and Pricing – Breakeven Point; Price Increase / Decrease Risk Analysis – What happens if . . . Scenarios Strategic Decisions – Knowing what drives the business Process Improvement – Improve processes by analyzing the results of changing drivers
- Identifying Key Metrics – What drives Sales? What drives Costs? What drives Overhead? Global Drivers – These drivers are usually input at a total company level Local Drivers – These drivers are typically input by the Planning Unit Manager Model Impact of Variables – Increase, decrease and modify drivers to determine the financial impact Focus on Areas that Drive Success – What has a material impact?
- What if Scenarios – This will enable you to see the impact that changing variables can have on the financials Focus on What Drives the Organization – Using drivers allows you to hone in on the business processes and key metrics that really drive the organization Standardize the Forecast – This doesn’t mean update it once and forget about it. This will be an iterative process and will change along with your business. Labor Expenses – Using Drivers to predict labor expenses can be very accurate if the rates and caps are applied to each individual Create Forecasts more Easily – No more manual input at the planning unit level every time a change needs to be made.
- Manage Changes Efficiently – By using drivers you could potentially shorten your forecast process from days to hours Consistency – Everyone is using the same rate Quickly & Often – Utilizing drivers allows you to update forecasts quickly and more often to see different outcomes Strategic Advantage – Knowing what drives the business and analyzing those changes will allow the organization to be proactive instead of reactive
- Identifying Key Drivers – Create a Task Force and assign a leader; People from different segments of the organization Identifying the Level of Detail Required – Forecast is often prepared at a different level than where actual data comes in. Determine the Cost / Benefit of preparing Forecast at different levels.
- Unit Drivers – Tangible / Visible Sales Drivers – Are expenses as a % of Sales too high?
- Occupancy Drivers – Often used in Retail or with Stores and Branches to determine Rent or Lease Expense Square Footage can be used to allocate items like Utilities # of Transactions – Point of Sale industries like credit card companies Market Share / Attrition – How well is the organization retaining customers? Technology – Software project
- Key Steps – We’re going to discuss each of these areas in more detail in the following slides
- Variable Cost – Activity Based Costing
- Proactive vs. Reactive – Modeling different scenarios helps an organization to be better prepared when changes do occur Align Drivers with actual processes – By aligning drivers with actual processes the forecast becomes more streamlined. Easier to see where process improvement is needed. More efficient and quicker – It’s more efficient to change the major drivers and see the financial impact almost immediately without involving the individual planning unit managers
- Thank you for Attending today’s Webinar on Driver Based Forecasting!