What is Activity-Based Budgeting (ABB)?

Activity-based budgeting is budgeting based on activities rather than units, products, or departments. An extension of ABB.

Activity-based budgeting is based around activities; it centers on the information generated through the activity-based costing (ABC) system, focusing on the operations of the business within the value chain.

Activity-based budgeting is gaining significant use in very large organizations. The process of creating Activity-based budgeting (ABB) is as follows:

  1. Analyze products and customers to be able to predict the production and sales demand.
  2. Use the information from the ABC system to estimate the resources required to perform organizational activities.
  3. With demand predicted, estimate the quantity of each resource that will be needed to meet the demand.
  4. Allocate resources based on these predictions for each activity.

Advantages and Disadvantages

See the advantages and disadvantages of activity-based budgeting in Figure 1.

Advantages and disadvantages of activity-based budgeting

Figure 1: Advantages and disadvantages of activity-based budgeting