Driver Based Budgeting is currently a real buzzword, but what does it actually mean?
Simply put, Driver Based Budgeting means that you can budget a cost category within the profit and loss account, such as revenue, based on various input drivers (think of production volumes, average selling price, etc.). In addition, you can use dependencies where, for example, a change in revenue automatically leads to a change in costs. With the help of tooling, you can semi-automate this process so that you spend less time on building the budget figures and more time on the actual analysis.
What we often see is that controllers build their budget completely from scratch. This starts with asking managers to fill in a complete first version of the budget. But instead, you can also look at trends from the past. Suppose direct costs have been 40% of revenue in recent years: prefill that 40% as your driver, and let the manager adjust only where they expect deviations. Because that is exactly what you want to discuss as a business partner.
Whether the drivers calculate correctly should not be something you need to discuss or even think about. That should be a fixed calculation, supported by your tool. You only want to check whether the outcome matches your expectations. After that, your tool should help clarify where and why you deviate from what has been defined in your drivers, so that you can have that discussion within your organization.
By changing some of your drivers, you can also create a new scenario and a new forecast. If, for example, you need to produce a new forecast every month, you do not want to rebuild your P&L from scratch each time. You want to set up the drivers once, after which the forecast can roll out automatically based on the predefined drivers, supported by your tool. Of course, you can also add data manually, because there will always be unforeseen matters. That is how you keep the process flexible.