Why this matters
Budgets set the guardrails. A rolling forecast gives you steering. Driver trees add the map. With a handful of inputs you can explain most of the movement in revenue, labour cost, and GM percent. The result is a short monthly loop that leads to clear decisions.
Use only a few drivers
Start with 5 to 7 drivers that really move the P&L. For most services teams this is Rate, Utilisation, Hours, FTE, and Cost per FTE. Add more only when they change decisions.
What a driver tree is
A driver tree is a one page diagram that shows how small inputs roll up to key results.
- Revenue equals Rate times Utilisation times Hours.
- Labour equals FTE times Cost per FTE.
- GM percent equals (Revenue minus direct costs) divided by Revenue.
Terms in plain English
- Utilisation: the share of paid time that is billable to clients. If a consultant works 160 hours and bills 120, utilisation is 75 percent.
- FTE: full time equivalent. Two half time people count as 1 FTE.
- GM percent: gross margin percentage. Revenue minus direct costs, divided by revenue, then expressed as a percent.
- Sensitivity: a quick what if test that changes one input to see the impact.
Common failure mode
Too many drivers create noise and slow decisions. If a driver does not change an action this month, park it.
Build the 3 tab starter
Keep a monthly horizon and a 12 plus 1 window.
-
Drivers
A small input table you can change each month: Rate, Utilisation by team, Hours per person, FTE, Cost per FTE. -
Calc
Link the inputs to outcomes with simple formulas:
- Revenue = Rate times Utilisation times Hours
- Labour = FTE times Cost per FTE
- GM percent = (Revenue minus direct costs) divided by Revenue
- Output
One page that decision makers can read in two minutes. Include the driver tree, a small sensitivity bridge, and three bullets that state what changed, why it changed, and what we will do now.
Tiny numeric example
Assume:
- Rate 200 dollars per hour
- Utilisation 75 percent
- Hours per person per month 160
- FTE 10
- Cost per FTE 10,000 dollars per month
Base month
- Billable hours = 160 times 75 percent times 10 = 1,200 hours
- Revenue = 1,200 hours times 200 = 240,000 dollars
- Labour cost = 10 times 10,000 = 100,000 dollars
- GM percent (before other direct costs) = 58.3 percent
Run three fast sensitivities
Change one input at a time and compare to base.
-
Price up 5 percent
New rate 210. Revenue 252,000. GM percent 60.3 percent. -
Utilisation down 5 percent
New utilisation 71.25 percent. Billable hours 1,140. Revenue 228,000. GM percent 56.1 percent. -
Add 1 FTE at the current cost
FTE 11. Labour 110,000. Revenue unchanged at 240,000. GM percent 54.2 percent.
How to read the bridge
Look at which change moves GM percent the most. If price has a large positive impact and churn risk is low, prepare a pricing action. If utilisation is fragile, protect it first with scheduling and WIP control. If headcount grows faster than revenue, plan a pause until utilisation recovers.
Monthly operating rhythm
Use the tree inside your rolling forecast loop:
- Close the month and confirm the facts.
- Explain movements using the drivers.
- Refresh the inputs and re forecast the next 12 months.
- Decide the actions and assign an owner and a date.
Anti patterns to avoid
No single owner for each driver. Constantly changing the list of drivers. Chasing decimal level precision when direction would be enough.
What you will get if you stick to this
- Faster monthly reviews with less debate about noise
- Clear linkage between operating activity and P&L
- Decisions that compound because they are made every month
Rolling forecast quick start
Book a short FP&A rhythm review. We will check your current cadence, agree targets, and set a 6 to 12 week plan with clear guardrails.
Contact: hello@numerroo.com.au · /contact