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Oracle PBCS Driver Based Planning

What is Driver-Based Planning?

 

Driver-based planning is an approach to incorporate assumptions of business activities in financial plans. These assumptions are key drivers which are modeled to drive financial data such as revenue and expense estimates.

The benefit of using Driver-Based Planning -

Driver-based planning provides you the flexibility to make quick changes in changing the environment. For example - Due to economic environment change in your organization,

you are asked to cut $200,000 from expenses you budgeted for the coming year. For this, you can follow one of the below approaches

1 You’ll have to go through each line item to make changes. It may not be easy or even accurate. You can't cut entire amount from a single line item i.e. Travel expenses or Marketing expenses, these may affect the sales pipeline and the revenue.

2 The other way to make quick changes in the budget is working with key drivers. making changes in few key drivers will allow you to act faster and accurate.

Understanding Driver based Planning Practically

Let’s take the example of Oracle Vision application for a fictitious company Vision Corp based out of USA, manufacturing computer equipment and service provider (training and consulting).

Revenue and expense drivers in Vision Planning process:

Revenue Drivers

–  Sales by Revenue - based on Volume, Pricing, Margin

–  Service Revenue - based on Sales Revenue

Operating Expense Drivers

–  Travel & Entertainment - based on no. of sales calls

–  Office Expenses - based on Headcount

Setting-up Operating Expense Drivers

Business Rule – Operating Expense Set Driver

Account of OPEX hierarchy for children of Sales entity
 
In table-1 you can see how driver’s values are setting-up. If there is an actual number at previous year for OPEX accounts (Column E). The driver, Method, and Rate Pct for next year for plan scenario will be populated (Column B, C, and D) from existing driver’s values (Column F, G, and H).

Table-1

Business Rule: Operating Expenses Plan 

Code written in the red block is defining the driver volume for all OPEX accounts for all Sales entities based on the driver value for the account.

There will be different driver volume of each account based on the driver value. i.e. for accounts having driver value “1”, the account will be assigned Total Revenue (4001) of Working version (CurVersion) for product computer equipment (P_TP1).

Table-2 and Table-3 are illustrating the code written above.

Table - 2

Table -3

Code written below is defining the driver Rate for all OPEX accounts for all Sales entities based on the Method and Driver values for the account.

As the code is written above for conditions defined
1) Driver Rate will be same value is 1 (% of Revenue).as Rate Pct for all those accounts for which Driver i.e Driver Rate for Account 7110 (Advertising).

2) Driver Rate will be 1 + Rate Pct for all those accounts for which Driver value is 7 (None) or #Missing and Method should have a value. i.e Driver Rate for Account 7620 (Legal Services).

3) Driver Rate will be the multiplication of historical Driver Rate for the previous year and 1 + Rate Pct of next year for all those accounts for which Method value is 1 (LY Actual +/- %). i.e Driver   
     Rates for Account 7410 (Utilities).

4) Driver Rate will be the multiplication of planned Driver Rate for the current year and 1 + Rate Pct of next year for all those accounts for which Method value is 2 (CY Plan +/- %). i.e Driver Rate   
    for Account 7640 (Airfare).Driver Rate will be the multiplication of forecasted Driver Rate for the current year and 1 + Rate Pct of next year for all those accounts for which Method value is 3 (CY 
    Fcst +/- %).

Table - 4 is depicting the examples for the code written above.

Table - 4 

Code written in the Red block is calculating the planned numbers for all OPEX accounts based on the drivers, rate all Sales entities.

Table - 5 is depicting the examples for the code written above.

Table - 5

Similarly, Driver-based planning can be done for other line items

  • Travel & Entertainment - based on no. of sales calls
  • Office Expenses - based on Headcount
  • Sales by Revenue - based on Volume, Pricing, Margin
  • Office Expenses - based on Headcount

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