kayode10
VIP Contributor
I was discussing with one my friend who happens to be a financial planner, we discussed about different ways to use lies budgeting for improving Personal finance as well as that of business.
He stated that we all need to imbibe active based budgeting in order to improve both. in this article I am going to highlight the general overview of activity-based budgeting and its importance.
Activity-based budgeting (ABB) is a budgeting method that focuses on the activities and resources required to perform those activities, rather than just looking at the historical spending patterns or basing the budget on a percentage increase or decrease from the previous year.
ABB is a planning process that identifies the cost drivers for each activity and assigns costs accordingly, making it more accurate and transparent than traditional budgeting methods.
The ABB process typically begins with a comprehensive analysis of the organization's activities and their associated costs. This analysis may involve breaking down the organization into smaller units or departments, identifying the activities each unit performs, and determining the resources required to perform those activities. This helps to identify the cost drivers and to allocate resources effectively.
After the analysis, the organization can develop a budget based on the cost drivers identified. This budget can then be broken down into different levels, such as by department or by activity, allowing managers to monitor spending and adjust their plans as needed. The budget may also include performance metrics for each activity, allowing managers to track their progress and make adjustments if they fall behind.
One of the key advantages of ABB is that it aligns resources with activities, making it easier to identify opportunities for cost savings or for reallocating resources to higher-value activities. It also promotes greater accountability and transparency, as managers must justify their spending based on the activities they are performing.
However, ABB can be time-consuming and may require significant effort to implement, especially for organizations that are used to traditional budgeting methods. Additionally, it may not be suitable for all organizations, as it may be more difficult to implement in organizations with complex or diverse activities.
In summary, ABB is a budgeting method that focuses on the activities and resources required to perform those activities, making it more accurate and transparent than traditional budgeting methods.
It aligns resources with activities, promotes accountability, and can identify opportunities for cost savings. However, it may be more difficult to implement and may not be suitable for all organizations.
He stated that we all need to imbibe active based budgeting in order to improve both. in this article I am going to highlight the general overview of activity-based budgeting and its importance.
Activity-based budgeting (ABB) is a budgeting method that focuses on the activities and resources required to perform those activities, rather than just looking at the historical spending patterns or basing the budget on a percentage increase or decrease from the previous year.
ABB is a planning process that identifies the cost drivers for each activity and assigns costs accordingly, making it more accurate and transparent than traditional budgeting methods.
The ABB process typically begins with a comprehensive analysis of the organization's activities and their associated costs. This analysis may involve breaking down the organization into smaller units or departments, identifying the activities each unit performs, and determining the resources required to perform those activities. This helps to identify the cost drivers and to allocate resources effectively.
After the analysis, the organization can develop a budget based on the cost drivers identified. This budget can then be broken down into different levels, such as by department or by activity, allowing managers to monitor spending and adjust their plans as needed. The budget may also include performance metrics for each activity, allowing managers to track their progress and make adjustments if they fall behind.
One of the key advantages of ABB is that it aligns resources with activities, making it easier to identify opportunities for cost savings or for reallocating resources to higher-value activities. It also promotes greater accountability and transparency, as managers must justify their spending based on the activities they are performing.
However, ABB can be time-consuming and may require significant effort to implement, especially for organizations that are used to traditional budgeting methods. Additionally, it may not be suitable for all organizations, as it may be more difficult to implement in organizations with complex or diverse activities.
In summary, ABB is a budgeting method that focuses on the activities and resources required to perform those activities, making it more accurate and transparent than traditional budgeting methods.
It aligns resources with activities, promotes accountability, and can identify opportunities for cost savings. However, it may be more difficult to implement and may not be suitable for all organizations.
