On Thursday (11/12) at 1pm ET, I hosted a free LinkedIn Live training on why drivers are a key element for value-added finance and how you can harness their power.
You can find the replay and written overview of that training below if you scroll down a bit.
It’s cool not being employed for a lot of reasons, but notably so I can transparently share the wins/losses in a way you just can’t when you’re employed. I hope you’re enjoying the additional teaching as much as I am.
Quick hits this week:
Earlier this week I signed my first Fractional CFO client since moving on from my VP Finance job. It’s for a non-profit that is doing amazing work in our community.
Something really cool happened - hours (literally) after I quit my VP job I got a random call from a friend looking for finance help for their non-profit. How crazy is that… God is good!
My goal is to share exactly what I’m implementing, what’s working/not, and lessons learned.
My goal with taking Fractional CFO and finance consulting clients is twofold:
First, provide amazing service and help them grow and build a better organization.
Second, share the journey with you all - the wins/losses and the templates. It’s my version of being an Instagram influencer who takes trips just for the sake of posting pictures to get followers 🙂
On Monday I’ll “officially” launch the consulting/fractional finance arm of Forecasting Performance. As much as I’m enjoying time with family, it’s time to get back to work. If you know of anybody who is looking to advance their finance team, I’d appreciate the referral.
Driver Training Overview:
In last week’s training on FP&A Transformation I told a quick story of how s**t hit the fan right after COVID and threw our modeling into an existential tailspin. I was the Senior Manager of Finance supporting the claims department when the cost of claims ballooned for a number of different reasons (more on that in the training).
The point of that story - and what we’ll cover in this training - is that going deeper on our drivers was the way that we matured in value-added aspects of the business: Reporting, Analysis, Forecasting, and Consulting.
In my case, I was forced into it. Which I don’t regret.
But if you have the choice, I’d highly recommend you do this on your own time before you’re forced into it.
Let’s jump in…
What are drivers?
Quite simply, drivers are the metrics that sit beneath the financial outcomes (revenue, COGS, expenses) that influence those financial outcomes.
Drivers can be fairly high-level and easily measured (staffing levels, new sales) or can go as deep as hard-to-get operational data or external data (don’t worry, we’ll go through a couple real examples of this to make it real).
But the most important part is that you understand how there are layers to this (like ogres and onions). Below is an overly-simplified visual of how I think about this for personal auto insurance:
As you can see, drivers open up an impossibly endless depth of potential ways to talk about the business.
The mystery of this can be fun but overwhelming. The goal for FP&A is to simplify all of this into the handful of drivers that actually matter.
Why drivers matter
Quite simply, drivers matter because they bridge the gap between the financials and how business leaders actually talk about the business.
This is key for me, because when I walked into that claims finance team I inherited a ton of reporting and modeling down to the driver level. But the business leaders had no clue what to do with it because all the drivers were financial - they reconciled perfectly to the financials but said little about the business operations.
The result? Finance felt secure that everything tied but the business felt confused because it didn’t feel actionable.
The primary change I made was to flip from explaining claims costs by things like ‘number of claims with outstanding reserves between $25K and $50K’ to ‘more repairable cars that went to out of network body shops’.
This change was a direct result of sitting with the business leaders to understand how they talked about the business and how their teams actually did the work.
The result of this change? The business fully understood what to do but finance felt a bit uneasy about the lack of perfect reconciliation (since we flipped into non-financial data for the drivers).
Why drivers are the unlock to value-added finance
It’s likely obvious by this point, but when you drill to this level for your drivers you create an obligation to yourself to 1) report at this level 2) do additional analysis at this level 3) forecast at this level and 4) talk to the business at this level - which means you force value added finance across the entire FP&A OS.
When you force drivers, you force value. It’s that simple. Look back at that first image of the before/after of my team during this time.
Now, a question you might be asking: “Brett, if it’s all about the forecast drivers then what about the forecast techniques?”
Of all the FP&A people in the world, I’m king of nerding-out about forecast techniques: trends and seasonality, statistical methods, machine learning, etc.
But, if you spend all that energy applying advanced techniques to the wrong drivers, you’ll feel your impact cap out no matter how sophisticated your techniques are.
Below is a grid for how I like to think about it - as 2 dimensions where your main priority should be moving left to right while you also think about moving top to bottom.
Know someone who’s looking for finance support?
I’m officially opening up Forecasting Performance to consulting and fractional finance work (fractional CFO, short-term engagements, etc.). I’m working with $10M-$100M service businesses that want to elevate their finance function.
If you (or someone you know) could use a little extra horsepower in their finance team, forward this email and have them reach out to me.
Brett Hampson, Founder of Forecasting Performance