![]() ![]() The driver-based modeling process starts with business outcomes. But once you do that, you can use the metrics to create tactical execution plans for business units. The third step is the most significant part of the forecasting process, where you break those KPIs down into key drivers, assumptions, and results in your model. Then, you need to identify the quantitative KPIs that will measure those goals. The diagram below shows how the logic works out when you follow these steps.įirst, you need to align on the overarching business goals that you’re trying to model out. There are three high-level steps involved in building a driver-based forecast that effectively links drivers and assumptions to create business plans. How to Build a Driver-Based Forecast in 3 Steps But the real value of driver-based planning comes when you effectively link the two together as you build out planning models and reporting processes. Having a strong grasp on what’s a driver versus what’s an assumption is important. That’s why quota attainment is an effective assumption rather than a driver. There’s a limit to how much you can increase quota before attainment becomes impossible. Compare that to something like quota attainment. In the sales headcount example, each additional hire should drive a consistent increase in expected revenue growth. Drivers should also scale alongside your business. They have minimal diminishing returns.Factor in their ramp rate as a driver to help calculate when you can expect improvements in sales pipeline metrics. You know that each new head will increase financial performance. For example, you can fully control sales headcount as a driver of revenue growth. Drivers should be inputs that you can increase or decrease with a high level of certainty in scenario analysis. There are two main characteristics of effective drivers. They’re scalable inputs for the model-levers you can pull to influence business performance outputs. Drivers, compared to assumptions, are elastic. These assumptions work in conjunction with key business drivers to logically model out the goals you’re striving to achieve. A few examples of common assumptions that you could build into your model include: You can update them as your business evolves, but they aren’t as dynamic as true business drivers in a model. Your assumptions are based on historical data from the prior 3, 6, or 12 months. ![]()
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