The virus and following market disruptions this year have shown the holes traditional annual budgets have for setting goals, judging performance, and forecasting the future.
But what do you do now that the forecasts or models you built at the beginning of the year are no longer valid? Do you start your 3-month budgeting process all over again? Or do you find a way to create reliable and quick forecasts for an ever-changing market landscape?
I’m here to tell you to let your annual budget die. Stop spending three months creating an irrelevant budget when you use it. Instead, start on the journey of a rolling 12-month driver-based forecast.
Before you start your journey, let me point out some key points.
Now that you know the purpose of a forecast and its pitfalls let me tell you what a driver-based forecast is and why you need one.
A driver-based forecast is based on high-level information that can be easily updated and collected from your various business units and departments. Examples of drivers
Those are just a few examples. Most driver-based forecasts are based on 15 to 30 different drivers. The point of a driver-based forecast is to put together a list of objective items that drive the costs and revenues of your business. With those collected, you can easily create a forecast and then update the forecast with new data on a daily, weekly, monthly, or quarterly basis. You can then evaluate those drivers based on the actual results and adjust or change the drivers.
The advantages of a driver-based forecast are several.
Because driver-based forecasts are so flexible, it is easy to forecast when the market changes, letting you know when and if you need to make significant changes to your business strategy.
Suppose you want to learn more about driver-based forecasts or need help understanding what moves your business forward. Feel free to contact [email protected] or call (801) 263-0400. We have a team of professionals who can help you identify your goals and create a driver-based forecast for your business.