Business driver analysis
What is driving our bottom-line success?
Most of our business processes involve time lags. In a manufacture-to-order business, there is a lag between increasing our advertising and receiving new orders, a lag between booking these orders and the corresponding manufacture, a lag as manufactured products are distributed to the customer and yet another between sale and cash.
A powerful way of ensuring that everyone understands these lags is to create a Business Driver Diagram. In this example it is clear that 'operating profit' is the net effect of a chain of preceding causes. The 'upstream' indicators are to the left of the diagram, so if we want to predict our downstream profit, we had better start with an upstream business driver such as total market growth, or growth of own market share.
Business Driver Diagrams are an effective way of ensuring that general managers as well as financially qualified professionals follow every step of the discussion about business performance. Crucially, they also provide a coherent framework for the inclusion of non-financial key indicators into the company's management reporting.
What is driving our bottom-line success?
Most of our business processes involve time lags. In a manufacture-to-order business, there is a lag between increasing our advertising and receiving new orders, a lag between booking these orders and the corresponding manufacture, a lag as manufactured products are distributed to the customer and yet another between sale and cash.
A powerful way of ensuring that everyone understands these lags is to create a Business Driver Diagram. In this example it is clear that 'operating profit' is the net effect of a chain of preceding causes. The 'upstream' indicators are to the left of the diagram, so if we want to predict our downstream profit, we had better start with an upstream business driver such as total market growth, or growth of own market share.
Business Driver Diagrams are an effective way of ensuring that general managers as well as financially qualified professionals follow every step of the discussion about business performance. Crucially, they also provide a coherent framework for the inclusion of non-financial key indicators into the company's management reporting.
Client benefits
"Business driver diagrams make us learn more about the business. They help us become better at general management because of the breadth of issues we can look at."
FTSE 100 Divisional Finance Director
FTSE 100 Divisional Finance Director