The ‘key drivers’ are the ‘engine room’ of predictive accounting reports

The Predictive Accounting Process incorporates budgets, cash flow forecasts and projected balance sheets. But the link that makes these forecasting functions credible are the ‘KEY DRIVERS’.

‘Key drivers’ relate to items such as:

Production targets

Team member productive hours forecast

Materials usage forecast which is linked to production

Raw materials inventory

Completed products inventory

Composition of materials for individual products and the costing of those products

External purchases on behalf of clients

Mark-up of external purchases on behalf of clients

Projected sales – with seasonal variations

Debtors – including projected debtors days outstanding

Creditors – including creditors days outstanding and the treatment of “priority creditors”

Research and development projects

Capital expenditure – projects

Loans

Capital raising

Grants

Each of these Key Drivers is an integral component that needs to be evaluated as part of the Predictive Accounting Process, to ensure that reliable data is being used in the forecasts.

The information recorded in the various Key Driver Accounts is posted to the relevant segment of the Predictive Accounting Reports – budgets for individual business units, the cash flow effect of a transaction and the items which affect the balance sheet will then be posted.

The source of the transactions relating to all of these items commences within the ‘Key Driver Accounts’.

This approach of constructing a forecast of events that are expected to unfold for the company over the next 12 months or some other time, is very important for sound business management. Utilising the Predictive Accounting Methodology gives the company a far better chance of having an accurate projection of the future rather than taking last year’s figures and making an arbitrary percentage adjustment.

If the budget estimates had been merely based on last year’s sales plus or minus a percentage, the leadership team would have virtually no confidence in the accuracy of the budget forecast.

However, utilising the ‘Key Drivers’ methodology, where every activity that will have some influence on the budgets, cash flow forecasts or projected balance sheets is subject to proper planning within the Key Drivers, gives the leadership team a basis to accept the Predictive Accounting Reports as being logical forecasts of future events.

Towers Business Development can assist businesses in the development of Predictive Accounting Reports. To find out more, contact us on 1800 232 088 or email to arrange a complimentary initial consultation via Zoom.