Activity-based budgeting (ABB) is a method of budgeting that focuses on the activities that are necessary to achieve an organization’s goals. It is a form of zero-based budgeting, which means that all expenses must be justified and approved before they can be included in the budget. ABB takes into account the cost of each activity and allocates resources accordingly. This allows organizations to better manage their resources and ensure that they are being used efficiently.
Activity-based budgeting has several advantages over traditional budgeting methods. It allows organizations to better understand their costs and allocate resources more effectively. Additionally, it helps organizations identify areas where they can reduce costs or increase efficiency. Finally, ABB provides greater transparency into how funds are being allocated, allowing for better decision making.
Implementing activity-based budgeting requires careful planning and analysis. Organizations should first identify their goals and objectives, then determine the activities necessary to achieve them. Once these activities have been identified, organizations should estimate the cost of each activity and allocate resources accordingly. Finally, organizations should monitor their progress and adjust their budgets as needed.