Activity-Based Budgeting - ABB

AAA

DEFINITION of 'Activity-Based Budgeting - ABB'

A method of budgeting in which the activities that incur costs in every functional area of an organization are recorded and their relationships are defined and analyzed. Activities are then tied to strategic goals, after which the costs of the activities needed are used to create the budget.

Activity based budgeting stands in contrast to traditional, cost-based budgeting practices in which a prior period's budget is simply adjusted to account for inflation or revenue growth. As such, ABB provides opportunities to align activities with objectives, streamline costs and improve business practices.

INVESTOPEDIA EXPLAINS 'Activity-Based Budgeting - ABB'

By looking at the cost structure of an organization via the processes that are actually being performed, managers can more effectively analyze the profit potential of a company's products and services. Cost efficiencies can be found by comparing activities performed in different areas of the organization and consolidating or rerouting certain functions.

At its essence, activity-based budgeting begins by looking at results and the activities that created them, as opposed to cost-based budgeting, which often begins with raw input and material and works outward. ABB can also help firms create more accurate financial forecasts.

RELATED TERMS
  1. Activity Capacity

    The degree to which a particular action is expected to perform. ...
  2. Activity Cost Driver

    A factor that influences or contributes to the expense of certain ...
  3. Avoidable Cost

    An expense that will not be incurred if a particular activity ...
  4. Batch-Level Activities

    In managerial accounting, production costs that are incurred ...
  5. Variable Cost

    A corporate expense that varies with production output. Variable ...
  6. Zero-Based Budgeting - ZBB

    A method of budgeting in which all expenses must be justified ...
Related Articles
  1. Budgeting

    The Beauty Of Budgeting

    Make it to the end of the month, before you run out of money.
  2. Budgeting

    Which is a better measure for capital budgeting, IRR or NPV?

    In capital budgeting, there are a number of different approaches that can be used to evaluate any given project, and each approach has its own distinct advantages and disadvantages.All other ...
  3. Budgeting

    How Budgeting Works For Companies

    Learn how to break down and understand a corporate budget.
  4. Professionals

    Understanding Interpersonal Skills

    Interpersonal skills are the social skills people use to interact effectively with other people. A lack of good interpersonal skills may lead to unsuccessful personal relationships, as well as ...
  5. Economics

    Dilip Shanghvi's Net Worth: How Did He Get So Rich?

    Dilip Shanghvi made Sun Pharma a huge global business through smart acquisitions and strategic entry into the right market sectors.
  6. Investing

    What Is Hollywood Spending On Oscar Campaigns?

    Here's a look at how much Hollywood is spending this awards season to take home the gold at the 2015 Academy Awards.
  7. Investing

    Which Is Better For Me: MarketWatch Or Bloomberg?

    As part of a series comparing popular finance websites, Investopedia conducts an unbiased review of MarketWatch and Bloomberg.
  8. Budgeting

    Are You Spending Too Much?

    Post-holiday credit card bills are just one signal that it's time to cut back on spending. Here are others.
  9. Professionals

    How Mukesh Ambani Has Expanded Reliance Industry

    Mukesh Ambani has expanded Reliance Industries and increased its revenues, but his public image, and that of his company, have not fared as well.
  10. Credit & Loans

    What are common factors that lower your net worth?

    Net worth is determined by calculating financial assets versus liabilities. As the liabilities increase versus the assets, net worth is lowered.

You May Also Like

Hot Definitions
  1. Portfolio Turnover

    A measure of how frequently assets within a fund are bought and sold by the managers. Portfolio turnover is calculated by ...
  2. Commercial Paper

    An unsecured, short-term debt instrument issued by a corporation, typically for the financing of accounts receivable, inventories ...
  3. Federal Funds Rate

    The interest rate at which a depository institution lends funds maintained at the Federal Reserve to another depository institution ...
  4. Fixed Asset

    A long-term tangible piece of property that a firm owns and uses in the production of its income and is not expected to be ...
  5. Break-Even Analysis

    An analysis to determine the point at which revenue received equals the costs associated with receiving the revenue. Break-even ...
  6. Key Performance Indicators - KPI

    A set of quantifiable measures that a company or industry uses to gauge or compare performance in terms of meeting their ...
Trading Center