Solutions

Activity Based Budgeting (ABB)

This way the budget becomes more justifiable, while improving value

What is Activity Based Budgeting (ABB)?

Activity Based Budgeting (ABB) the Astrada way is an innovative budgeting method for improving the accuracy of financial forecasts and increasing management understanding by moving people out of “spreadsheet budgeting”, where they simply increase last year’s numbers. It analyses the products or services to be produced by considering the resources needed to perform those activities. ABB can be described as a reversed Activity Based Costing (ABC) process to produce financial business planning.

Managers often find traditional budgeting to be difficult and time-consuming while bringing limited value, whereas employees have the impression that the budget is a set of pre-determined spending limits. Hence the budget is often viewed just as a control tool, not the analytical tool it has the potential to be. We believe that instead of a traditional, cost-based budgeting practice in which a prior period’s budget is simply adjusted to account for inflation or revenue growth, the broader purpose for a budget should be to predetermine the resources needed in terms of people, material and equipment.

Our approach is that a budget should flow backwards from outputs, thereby providing the ability to identify the requirements. ABB can be classified as a “pull-based’ methodology, as opposed to the conventional “push-based” approach. ABB both simplifies the budgeting process and ensures the quality of resource-allocation decisions. This way the budget becomes more justifiable, while improving value and strategic alignment, and thereby reducing cost.