Budget Season Foundations  #4:  Use a Data Driven Approach to Model Your Big Idea

Budget Season Foundations  #4:  Use a Data Driven Approach to Model Your Big Idea

So, you are in the midst of budget season.   You were handed your growth goal for next year (illustratively 7%), you built your bottoms up approach to achieving your goal with 3-5 big ideas that you believe will deliver revenue, and you have socialized your ideas cross-functionally.  

Now, it is time to put the pen to paper and start crunching numbers to see if your big ideas will deliver revenue back to your business.

I use the following data-driven process to build my financial projections for my big ideas:

1.      Build a financial model that includes a simple way to adjust the key drivers that impact performance

Unsure what a driver is?   Let me quickly explain.   A driver is a number or metric that can dynamically change the assumptions (and ultimately the outcomes) of your financial model.   The data that feeds the drivers are typically business or customer operations metrics that will be impacted by your big idea.   I typically try to identify 3-5 different drivers that can be adjusted to quickly and easily update your financial model.    

2.      Clearly define the primary and secondary drivers

Quick definition time:   Primary drivers are the metrics that you believe will have the largest financial impact from your big idea or, stated another way, the primary reason why you came up with the big idea.    Secondary drivers are ancillary benefits that you believe can occur.   Secondary drivers typically are identified when you talked with and aligned your big idea with cross-functional teams (from Budget Foundations #3).

3.      Approach your modeling with a low, mid, and high range of financial impacts

This is where you hedge your bets.   From your conversations with other teams and your own research, you probably have a rough assumption of the financial impact your big idea will deliver back to your business.   When you start the modeling exercise, you can apply a conservative impact to your big idea (low), a realistic landing spot (mid),  or an overly aggressive impact (high) to your big idea.   From here, you can validate your assumptions and ranges with trusted data-driven SMEs (subject matter experts), which will help refine your model to get laser-focused on the truer outcomes.  

At this point, you now have a dynamic low, mid, and high assumption model for your big idea.  You can now use this model as a template for your other big idea models (adjusting the drivers and impacts), and see where your revenue nets out for all of your big ideas.  

Hopefully, when you do the simple math across all these models, you are well on your way to achieving your annual revenue goal and can move to the next big obstacle: gaining approval from your executive team.