Improve Your Cost Center Planning with Driver-Based Planning

  • by Janet Salmon, Product Manager, SAP AG
  • March 15, 2007
See how to plan cost center activities automatically with driver-based planning. Learn how it works in both manufacturing and service departments.
Key Concept

Driver-based planning is a best practice in the manufacturing industry, in which companies often use the sales plan as a starting point for the production plan and the production plan to determine cost center capacities. Companies in the service industries also use driver-based planning increasingly, in which instead of a physical quantity of goods to make and sell, a bank might plan the clerical hours required to handle the loan applications it hopes to handle in a given region or the clerical hours required to process the new credit cards that it hopes to issue in the next budgeting period.

Many organizations consider driver-based planning a way to improve their operational planning. The objective of driver-based planning is simple enough — to provide a more accurate picture of expected future business performance by planning and monitoring the key operational activities that drive these results. However, achieving this objective can require you to reconsider the way you approach planning. In driver-based planning, you do not start the planning process with the monetary values for the period, such as dollars per line of business. Instead you start with the drivers in sales and production, such as the sales quantities and production quantities, and use these to calculate how much work you’ll need to put in to meet your targets.

Ultimately, the amount of work required brings you to the capacity per resource, whether this is a cost center supplying machine time or a call center providing clerical hours. You then plan your expenses against these drivers to calculate the resources you will consume on each cost center to execute your plan.

In a series of two articles, I’ll walk you through driver- based planning in manufacturing and service environments. In the first article, I will show how to use drivers that already exist in routings and recipes to plan the activities required for each cost center automatically. You then can calculate an activity rate based on this input in a manufacturing environment and value the sales plan with the standard costs for each product to be sold. In the second article, I will show how to set up templates to access the drivers that do not exist in routings or recipes to plan activities, such as loan applications in a service environment, or to replace manufacturing overhead with a driver- based allocation. I’ve developed this process in mySAP ERP Central Component (ECC) 6.0.

Janet Salmon

Janet Salmon joined SAP in 1992. After six months of training on R/2, she began work as a translator, becoming a technical writer for the Product Costing area in 1993. As English speakers with a grasp of German costing methodologies were rare in the early 1990s, she began to hold classes and became a product manager for the Product Costing area in 1996, helping numerous international organizations set up Product Costing. More recently, she has worked on CO content for SAP NetWeaver Business Warehouse, Financial Analytics, and role-based portals. She is currently chief product owner for management accounting. She lives in Speyer, Germany, with her husband and two children.

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