Ufuk Süleyman Oflaz

10Driver-based planning architecture

Budget & Forecast Management Model

A financial planning model that turns the budget from a static spreadsheet into a living management system of assumptions, actuals and forecasts.

Built by:

The problem

In many companies the budget is a table prepared once a year and put away once approved. When actuals diverge, the variance is hard to explain, because the numbers are not linked to the assumptions that produced them.

Why it matters

A budget built from numbers cannot explain a variance when one occurs. Management is left deciding without knowing what changed.

Approach

  1. Build the budget from the drivers that produce the numbers, not from the numbers: volume, price, headcount, unit cost, collection and payment terms.
  2. Link the income statement, balance sheet and cash flow to one set of assumptions.
  3. Bring actuals into the model every month and re-project the rest of the year with an updated forecast.
  4. Make variances explainable by splitting them into volume, price and cost effects.

What it examines

  • Revenue drivers
  • Headcount assumptions
  • Operating expenses (OPEX) and capital expenditure (CAPEX)
  • Working capital
  • Financing
  • Budget vs. actual
  • Rolling forecast
  • Scenario analysis
  • Management summary

Example output

Driver assumptions, a budget versus actual-plus-forecast comparison, and a bridge splitting the revenue variance into volume, price and mix effects.

Limitations

  • The driver structure has to be designed for each company; no template fits every business model.
  • The model requires actuals to be brought in regularly and on time.

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