‫Activity based budgeting as a top down approach that determines the amount of inputs required to support
‫your outputs, what you're set by the company or department, you're asking for the budget.
‫An example would be your department sets an output of a target of 10 million in sales.
‫This department now needs to determine what activities needs to be undertaken to meet that particular
‫target and then find out what the costs are for those associated activities.
‫Many companies or departments were using this approach of activity based budgeting tend to have minimal
‫information regarding historical budgets.
‫So this could be a brand new project, new program or is if this is at the company level.
‫This could be a new company where, again, there is no historical data.
‫Typically, this is a great approach for a startup or smaller companies where you're gathering the data
‫to associate the cost to activity correlation.
‫One of the first steps in using this activity based budgeting model is writing down or determining what
‫activities are associated with this particular budget.
‫Once those activities are determined, you're going to go back and determine what the costs are for
‫each activity.
‫So you're essentially doing a cost estimate for each activity.
‫And secondly, you would go through and prioritize those activities while looking for activities you
‫can eliminate.
‫And that's something we'll look at at the upcoming activity related to this section.
‫There are many advantages and disadvantages of activity based budgeting.
‫The number one advantage is when using this particular method, you've already evaluated all of the
‫cost drivers that are taken into consideration to complete this budget.
‫So anything that's really irrelevant has already been eliminated from this program's budget.
‫Moving forward in determining your activities through walking through the cost, estimation and activity
‫prioritization, you've already eliminated the bottlenecks within this particular project.
‫So each activity has been prioritized.
‫And by doing so, the business eliminates any bottlenecks that are associated with an activity and the
‫business functions are carried out a bit more smoothly.
‫Now moving on to some disadvantages, of course, with this particular budget, it's short term.
‫So what is very ideal for this one particular program's budget and the activities to not be relevant
‫to the next program or project?
‫It can be slightly complex and requires various levels of research and understanding as you're walking
‫through reviewing those activities.
‫Germany the cost and prioritization.
‫So this will not only require the research team work within your team and taking up a bit of that resource
‫consumption. When we're thinking about resources that are involved in prioritization and discussing this
‫particular budget.
‫This includes taking them away from their main focus of work, which again, we're looking at the consumption
‫of our resources and the costs that it's incurring the company to remove those resources from their
‫primary projects.
‫So overall, activity based budgeting can be a bit more costly and time consuming to implement when
‫compared to other budgeting methods.
‫And this section focus on activities for a current or prior project you've been involved in using the
‫handout, you'll walk through the process of identifying activities, creating a cost estimate for each
‫activity, prioritizing activities and eliminating unnecessary activities.
‫At the end of the activity, you should have a better understanding of how activity based budgeting
‫works, along with the decision components and talking points when having a discussion with leadership
‫or your team.