## Activity Based Budgeting (ABB)
### Meaning and purpose
| Aspect | Description |
|---|---|
| Meaning | Analyses resource input and costs for each activity; estimates required resources based on budgeted activity levels |
| Comparison & control | Compares actual vs budgeted results to spot discrepancies for cost reduction |
| Purpose | A planning and control system supporting continuous improvement and a cost-effective budget aligned with strategic goals |
| Process | ABB reverses the ABC process to develop financial plans and budgets |
> Important relationship: ABC works forward (activities → product cost). ABB works backward (budgeted output → activities → resources needed).
### Key elements of ABB
| Element | Description |
|---|---|
| Type of work | Identifies the specific activities required |
| Quantity of work | Determines the volume of work needed |
| Cost of work | Estimates the resource costs for each activity |
### Benefits of ABB
| Benefit | Description |
|---|---|
| Enhanced financial accuracy | Improves accuracy of forecasts and management understanding |
| Automated & efficient planning | When automated, quickly generates plans/models under different volume assumptions |
| Eliminates rework | Reduces unnecessary rework of traditional budgeting techniques |
### Key takeaway
ABB is simply ABC run in reverse for planning: instead of asking 'what did this product cost?', it asks 'given our planned activity level, what resources and costs must we budget?'