Driver-Based Budgeting and Rolling Financial Forecasts – PowerPoint PPT Template

BENEFITS OF THIS DOWNLOADABLE POWERPOINT DOCUMENT

1. Understand the deficiencies with the traditional annual budget process.
2. Learn how to apply unit-level cost consumption rates with sales demand forecasts to project operational expenses and to include strategic and risk mitigation projects in expense projections.
3. Learn how to shift from bottom-up general ledger cost center consolidations to top down financial modeling.

BUDGETING & FORECASTING PPT TEMPLATE DESCRIPTION

Editor Summary Driver-Based Budgeting and Rolling Financial Forecasts is a 28-slide PowerPoint (with supplemental PDF) presentation developed by Gary Cokins, a former consultant at Deloitte, KPMG, HP, and SAS, that explains shifting from traditional annual budgets to capacity-sensitive driver-based budgeting and rolling forecasts. Read more Includes templates and tools such as a driver-based budgeting framework, rolling financial forecast model, resource capacity planning tool, predictive accounting guidelines, costing maturity assessment checklist, and KPI dashboard template. Targeted at financial executives, performance management professionals, strategic planners, and consultants; sold as a digital download on Flevy.

Use this deck when annual budgeting is proving slow, politically biased, disconnected from strategy, or quickly obsolete, and you need to move to capacity-sensitive rolling forecasts and driver-based expense projections.
  Financial executives and controllers building a quarterly or monthly rolling forecast process and integrating KPIs into financial projections.
  Performance management professionals designing predictive accounting and what‑if analyses for capacity-sensitive expense projections.
  Strategic planners linking strategic initiatives and risk projects to budgeted capital and recurring expenses using a strategy map.
  Consultants creating client-ready driver-based models and costing maturity assessments to replace manual spreadsheet consolidation.
The approach combines 4 EPM components—strategy map, risk matrix, capital projects, and activity-based costing—reflecting enterprise performance management practice.

Read Presentation Deep Dive

There is a shift in emphasis from historical reporting to predictive costing such as capacity-sensitive driver-based rolling financial forecasts, what-if analysis, and marginal cost analysis (e.g., pricing).

The annual budgeting process is being criticized as obsolete soon after it is published, prone to gamesmanship, cumbersome to consolidate cost center spreadsheets, not being volume sensitive, and disconnected from the strategy. The challenge is how to resolve these deficiencies. It can be done through driver based expense projections also useful for decision analysis.

The annual budget is often perceived as a fiscal exercise done by the accountants that is: (1) disconnected from the executive team's strategy, and (2) does not adequately reflect future volume drivers. The budget exercise is often scorned as being obsolete soon after it is produced, and biased toward politically muscled managers who know how to overstate and "pad" their budget request. To complicate matters, traditional budgets are typically incremented or decremented by a small percent change from each cost center's prior year's spending level. This "use it or lose it" behavior by managers in the last few months of the fiscal year unnecessarily pumps up their prior year's costs and consequently confuses analysis of who really needs how much budget in the coming year.

Today organizations are shifting to rolling financial forecasts, but these projections may include similarly flawed assumptions that produce the same sarcasm about the annual budgeting process.

What is the solution to these poor budgeting and rolling financial forecast methods?

Entrepreneurs know the age-old adage, "You need to spend money to make money." Excessively tightening the belt on an organization's spending can jeopardize its success. Rather than evaluating where costs can be cut, it is more prudent to change views and ask where and how the organization should wisely spend money to increase its long-term, sustained value. This involves planning for future expenses, but the annual budgeting and rolling financial forecast process has deficiencies.

Four components of the enterprise performance management (EPM) framework can be drawn on to resolve these limitations. They are a strategy map, a risk management matrix, capital projects, and activity-based costing principles. The first three are project-based and the last for recurring operational expense projections. Ideally, the correct and valid amount of future spending for capacity and consumed expenses should be derived from two broad streams of workload that cause the need for spending – demand driven and project driven. Demand-driven expenses are operational and recurring from day to day. Their requirements are typically from customers. In contrast, project-driven spending (e.g., strategy initiatives, risk mitigation) is nonrecurring and can be from days to years in time duration. How are these two demands on an organization's workload integrated into a budget?

Most executive teams request frequent updates and revisions to the financial budget. These are referred to as rolling financial forecasts because the projection's planning horizon may be as much as 18 months to two years beyond the fiscal year-end date. Imagine if you are a CFO or financial controller required to re-process the budget as a rolling forecast quarterly (or even monthly). There are not enough spreadsheets to do it! Only computer automation that integrates several of the methods of the enterprise performance management (EPM) framework, including good predictive analytics, allows an organization to produce valid capacity-sensitive driver-based rolling financial forecasts.

Organizations with a formal strategy-execution process dramatically outperform organizations without formal processes. Building a core competency in strategy execution creates a competitive advantage for commercial organizations and increases value for constituents of public sector organizations. You can learn to manage strategy. It is important to include and protect planned spending for strategic and risk projects in capacity-sensitive driver-based budgets and rolling financial forecasts. Those projects lead to long-term, sustainable value creation.

This presentation is ideal for managers who have struggled to advocate for rolling financial forecasts over traditional budgeting. It also serves those looking to champion driver-based budgeting and rolling forecasts within their organizations.

PRESENTATION DEEP DIVE ANALYSIS

This deep-dive analysis was generated from the full 28-slide PowerPoint presentation.

Executive Summary

This presentation on Driver-Based Budgeting and Rolling Financial Forecasts, developed by Gary Cokins, a recognized expert in enterprise performance management, addresses the limitations of traditional budgeting processes. It emphasizes the need for a shift towards rolling financial forecasts that align with strategic objectives and enhance decision-making. Executives and managers will gain insights into implementing driver-based budgeting to improve financial accuracy and responsiveness, ultimately fostering a more agile financial planning environment.

Who This Is For and When to Use

•  Financial executives and managers seeking to improve budgeting practices
•  Performance management professionals advocating for advanced forecasting methods
•  Strategic planners aiming to align financial resources with organizational goals
•  Consultants and advisors focused on enhancing client budgeting processes

Best-fit moments to use this deck:
•  During strategic planning sessions to discuss budgeting improvements
•  In workshops aimed at training teams on rolling financial forecasts
•  When presenting to stakeholders about the benefits of driver-based budgeting

Learning Objectives

•  Define the shortcomings of traditional budgeting processes
•  Build a framework for implementing rolling financial forecasts
•  Establish a connection between budgeting and strategic objectives
•  Identify key performance indicators (KPIs) for effective financial monitoring
•  Analyze resource capacity planning in the context of budgeting
•  Develop a roadmap for transitioning to driver-based budgeting

Table of Contents

•  What Is Broken with Budgeting? (page 6)
•  The Shift to Rolling Financial Forecasts (page 8)
•  Dealing with Resource Capacity Planning (page 18)
•  Predictive Accounting (page 10)
•  Linking Strategy and Risk to the Budget (page 16)
•  Costing Continuum / Levels of Maturity (page 26)

Primary Topics Covered

•  Budgeting Limitations - Traditional budgeting processes often disconnect from strategic goals and fail to adapt to changing conditions, leading to inefficiencies.
•  Rolling Financial Forecasts - This approach allows organizations to continuously update financial projections based on real-time data, enhancing accuracy and responsiveness.
•  Resource Capacity Planning - Effective budgeting requires understanding resource capacities and aligning them with forecasted demand to optimize operational efficiency.
•  Predictive Accounting - Utilizing predictive analytics to inform budgeting decisions helps organizations anticipate future financial conditions and adjust strategies accordingly.
•  Strategic Alignment - Linking budgeting processes to strategic initiatives ensures that financial resources are allocated effectively to support organizational objectives.
•  Costing Maturity Model - Understanding the levels of maturity in costing practices helps organizations identify areas for improvement in their budgeting processes.

Deliverables, Templates, and Tools

•  Driver-based budgeting framework template for aligning financial plans with strategic goals
•  Rolling financial forecast model to facilitate continuous financial planning
•  Resource capacity planning tool to assess and adjust resource allocations
•  Predictive accounting guidelines for implementing data-driven budgeting decisions
•  Costing maturity assessment checklist to evaluate current budgeting practices
•  KPI dashboard template for tracking financial performance against strategic objectives

Slide Highlights

•  A visual representation of the budgeting limitations and their impact on organizational performance
•  Flowchart illustrating the process of transitioning from traditional budgeting to rolling financial forecasts
•  Graph demonstrating the accuracy improvements achieved through more frequent forecasting intervals
•  Risk assessment grid to evaluate the impact of non-recurring expenses on budgeting decisions
•  Overview of the costing continuum and its relevance to budgeting maturity

Potential Workshop Agenda

Introduction to Driver-Based Budgeting (60 minutes)
•  Overview of traditional budgeting limitations
•  Discussion on the need for rolling financial forecasts
•  Interactive Q&A session

Implementing Rolling Financial Forecasts (90 minutes)
•  Step-by-step guide to transitioning to rolling forecasts
•  Case studies showcasing successful implementations
•  Group activity to draft initial rolling forecast plans

Resource Capacity Planning Strategies (60 minutes)
•  Identifying key resource constraints
•  Aligning capacity planning with financial forecasts
•  Tools and techniques for effective resource management

Customization Guidance

•  Tailor the budgeting framework template to reflect your organization's specific strategic objectives
•  Adjust the rolling financial forecast model to incorporate unique business drivers and KPIs
•  Modify resource capacity planning tools to align with departmental needs and operational realities
•  Update predictive accounting guidelines based on industry-specific financial practices

Secondary Topics Covered

•  The role of managerial accounting in effective budgeting
•  Techniques for integrating non-financial data into budgeting processes
•  Best practices for stakeholder engagement during budgeting cycles
•  Strategies for overcoming resistance to change in budgeting practices

Topic FAQ

What are the main limitations of traditional annual budgeting that drive organizations to consider driver-based approaches?

Traditional annual budgeting often becomes obsolete soon after publication, is time-consuming to consolidate, and can be biased by managerial “padding.” It typically uses incremental percent changes from prior-year cost centers and can be disconnected from executive strategy, making it insensitive to volume drivers and capacity needs.

How do driver-based budgeting and rolling forecasts differ from a yearly budget in practice?

Driver-based budgeting links financial plans to operational drivers and capacity, while rolling forecasts update projections continuously using recent data. Rolling forecasts extend the planning horizon (often up to 18 months to 2 years) and focus on capacity-sensitive expense projections rather than a one-time annual freeze.

What is predictive accounting and how does it support better forecasts?

Predictive accounting uses data analytics to anticipate future financial conditions and inform budgeting decisions, enabling what‑if analysis and capacity sensitivity. It shifts emphasis from historical reporting to forward-looking cost projections and is supported by predictive accounting guidelines included in the product.

I need to align my budget to strategic initiatives—what framework elements should I include?

Align budgets by combining a strategy map, risk management matrix, capital projects tracking, and activity-based costing for recurring expenses; integrate KPIs to measure strategic outcomes. Flevy’s Complete Driver-Based Budgeting and Rolling Financial Forecasts includes a driver-based budgeting framework template to support this alignment.

What should I look for when purchasing a driver-based budgeting toolkit for my finance team?

Seek deliverables that replace spreadsheet consolidation with models and checklists: a rolling financial forecast model, resource capacity planning tool, predictive accounting guidelines, costing maturity assessment checklist, and KPI dashboard template; also note format—this product is a 28-slide PPT with supplemental PDF.

If we move to quarterly rolling forecasts, what operational challenges are common and how are they addressed?

Common challenges include insufficient spreadsheet scalability, frequent re-processing demands, and inconsistent assumptions across cost centers. Addressing them requires automation and integration of EPM methods—strategy maps, predictive analytics, and activity‑based costing—to enable quarterly or monthly re-processing without excessive manual work.

Are paid driver-based templates worth buying versus building models in-house?

Paid templates provide pre-built frameworks, a rolling forecast model, capacity planning tools, and a costing maturity checklist that can reduce manual consolidation and accelerate deployment; for teams lacking automation, the rolling financial forecast model and predictive accounting guidelines are practical starting points.

What is a costing maturity model and how can it help improve budgeting practices?

A costing maturity model is a framework to evaluate an organization’s costing practices, identify improvement areas, and progress from basic to advanced cost methods. Use a costing maturity assessment checklist to benchmark current practices and plan upgrades to activity-based or predictive costing approaches.

Document FAQ

These are questions addressed within this presentation.

What are the main issues with traditional budgeting?
Traditional budgeting is often disconnected from strategic goals, time-consuming, and quickly becomes obsolete due to changing conditions.

How do rolling financial forecasts improve budgeting?
Rolling forecasts allow for continuous updates based on real-time data, enhancing accuracy and enabling organizations to respond more effectively to changes.

What is predictive accounting?
Predictive accounting involves using data analytics to inform budgeting decisions, helping organizations anticipate future financial conditions and adjust strategies accordingly.

How can we assess our current budgeting maturity?
Utilize a costing maturity assessment checklist to evaluate your organization's budgeting practices against established levels of maturity.

What tools can help with resource capacity planning?
Resource capacity planning tools can help assess and adjust resource allocations based on forecasted demand and operational needs.

How can we ensure alignment between budgeting and strategy?
Link budgeting processes to strategic initiatives by identifying key performance indicators (KPIs) that reflect organizational goals.

What are the benefits of driver-based budgeting?
Driver-based budgeting aligns financial plans with operational drivers, improving accuracy and enabling more effective resource allocation.

How often should we refresh our financial forecasts?
More frequent updates to financial forecasts are recommended to ensure accuracy and responsiveness to changing conditions.

Glossary

•  Driver-Based Budgeting - A budgeting approach that aligns financial plans with operational drivers and strategic goals.
•  Rolling Financial Forecasts - Continuous updates to financial projections based on real-time data.
•  Predictive Accounting - The use of data analytics to inform budgeting decisions and anticipate future financial conditions.
•  Resource Capacity Planning - The process of assessing and adjusting resource allocations to meet forecasted demand.
•  Costing Maturity Model - A framework for evaluating the maturity of an organization's costing practices.
•  Key Performance Indicators (KPIs) - Metrics used to measure financial performance against strategic objectives.
•  Strategic Alignment - The process of ensuring that budgeting practices support organizational goals.
•  Non-Recurring Expenses - One-time costs that do not occur regularly in the budgeting cycle.
•  Capacity Sensitivity - The ability to adjust resource capacities based on forecasted demand.
•  Financial Modeling - The process of creating representations of an organization's financial performance.
•  Activity-Based Costing (ABC) - A costing method that assigns costs to activities based on their use of resources.
•  Managerial Accounting - The practice of analyzing financial information to aid in decision-making and performance management.

Source: Best Practices in Budgeting & Forecasting, Management Accounting PowerPoint Slides: Driver-Based Budgeting and Rolling Financial Forecasts PowerPoint (PPT) Presentation Slide Deck, Gary Cokins