Glossary · Finance
Driver-based forecasting
Forecasting built from the operational quantities that cause financial results — volumes, prices, headcount, conversion rates — rather than from prior-period totals, so that each change in the forecast traces to a named driver.
- Field
- Finance
- Examined in
- CBA-FMA, CBA-FPA
- Learning objectives
- 3
Where the CBA Standards examine it
FP&A ProfessionalCBA-FPA
- 3.2Construct driver trees that link operational drivers (volumes, prices, headcount, utilisation, conversion rates) to financial outcomes.Forecasting and Driver-Based Modelling
- 3.3Calculate forecast values using run-rate, trend, driver-based and event-adjusted methods, and select the method suited to each line.Forecasting and Driver-Based Modelling
In the specimen paper
Sahel Facilities Services in Saudi Arabia is rebuilding the plan for its cleaning contracts on drivers. Four managers propose four different builds for the same revenue stream. Which one is genuinely driver-based?
Answer
Sites serviced, multiplied by hours per site and the charge-out rate.
Why that is the answer
A driver is a non-financial quantity that somebody outside finance can observe, influence or dispute, and that becomes money when multiplied by a rate. Sites, hours per site and charge-out rate each pass that test: an operations manager can tell you the site count is stale or that hours per site have crept up. Because the handles are separately visible, a later variance decomposes into causes instead of arriving as one unexplained sum. The other three builds start from an output, so they leave nobody anything to challenge and nothing to explain a miss with.
Related terms
- ForecastFinance
The best current estimate of what will actually happen. Unlike a budget, it should change whenever the evidence does.
- Rolling forecastFinance
A forecast that is extended by one period each time a period closes, so that it always covers the same horizon — typically four to six quarters — rather than ending at the financial year-end.